Global stocks stuttered on Thursday at the end of a tough month as unease over Europe's crisis and a run of weaker than anticipated U.S. economic data kept market sentiment in check.
Over the past month, the financial and political problems afflicting Greece, Spain and the 17-country eurozone as a whole have weighed heavily on world markets. U.S. stocks are set to suffer their first negative month since last summer, oil prices have slid and the euro has fallen to a near two-year low against the dollar.
European indexes struggled to hold onto gains on Thursday, with the FTSE 100 index of leading British shares closing up only 0.2 percent at 5,306.95. Germany's DAX ended 0.3 percent lower at 6,264.38 while the CAC-40 in France closed less than 0.1 percent higher at 3,017.01.
In the U.S., the Dow Jones industrial average dropped 0.3 percent to 12,384 while the broader S&P 500 index was 0.6 percent lower at 1,306.
The weaker than anticipated performance on Wall Street, which dragged down European markets, was due to some disappointing U.S. economic data ahead of Friday's key jobs figures, which often set the market tone for a week or two after their release.
"What we didn't need .... was for U.S. figures to come in below expectations," said Chris Beauchamp, market analyst at IG Index.
The ADP payrolls firm reported Thursday that private employers added 133,000 jobs in May, slightly below market expectations, while weekly jobless claims figures from the government reported a 10,000 increase. U.S. economic growth in the first quarter was also revised down, as anticipated, to an annualized rate of 1.9 percent from the previously reported 2.2 percent.
Analysts said the data suggested the official payrolls data due Friday may be somewhat weaker than the 160,000 increase expected before the figures came out.
"Today's ADP report is expected to lower consensus expectations for Friday's nonfarm payroll number to 100,000 to 130,000 and contributes to a further deterioration in the U.S. economic outlook," said Michael Woolfolk, an analyst at the Bank of New York Mellon.
Beyond the U.S. payrolls figure, the debt crisis in Europe will likely remain the focus of attention in the markets in the weeks ahead, not least because Greece goes to the polls again in a general election that is widely-viewed as a referendum on the country's continued use of the euro.
Though opinion polls show that four in five Greeks want to retain the euro, others show a split in support for parties that want to stick to the country's international bailout commitments and those that don't. The worry in the markets is that the anti-austerity parties will win, prompting a halt in Greece's bailout, which could lead to its bankruptcy and eventual exit from the eurozone.
Though Greece is the epicenter of the debt crisis, Spain has been a growing source of worry over recent weeks. Its banking system is under the microscope, especially after Bankia, the country's fourth-largest lender, last week announced it needed (EURO)19 billion ($23.8 billion) in state aid.
Investors are worried that Bankia's woes might be replicated across Spain's banking sector, which has suffered badly from the collapse of the construction sector. An economic recession and unemployment at almost 25 percent are fueling concern that the country will become the fourth euro country to be bailed out after Greece, Ireland and Portugal.
The problem for the eurozone is that Spain's economy alone is double the size of the three countries already bailed-out, and investors are skeptical whether a rescue operation can be mounted. The yield, or interest rate, on Spain's ten-year bond is around 6.5 percent, not far from the 7 percent threshold that is considered to be unsustainable in the long-run and eventually forced the other three bailouts.
Increasing numbers of experts say that the euro, in its current form, cannot survive.
"We may just be approaching the endgame where either the eurozone and/or the European Central Bank takes action to stem the bleeding or the whole thing collapses, with the trigger point being the trend in Spanish bond yields," said Gary Jenkins, managing director of Swordfish Research.
Ireland will hold a referendum on Thursday to decide whether the country should adopt Europe's newly-agreed fiscal treaty to put tough controls on governments' budget spending. The referendum is expected to approve the treaty, but similar polls were proved wrong when Ireland voted to reject the EU's last two treaties in 2001 and 2008.
A "no" vote would mainly damage Ireland itself, because its existing loans will run dry by the end of 2013 - and the treaty restricts future access to the EU's rescue fund to those nations that accept the new budget rules. Other eurozone countries would still be able to adopt the treaty even if Ireland rejects it.
In the currency markets, the euro remained under pressure, trading 0.1 percent higher at $1.2379, near its lowest level since July 2010.
Earlier, Asian stocks fell sharply, tracking developments in Europe and the U.S. the previous day.
Japan's Nikkei 225 index tumbled 1.1 percent to close at 8,542.73, its lowest finish since mid-January. Hong Kong's Hang Seng lost 0.3 percent to 18,629.52 and South Korea's Kospi was down marginally at 1,843.47.
Oil prices remained under pressure, with benchmark oil for July delivery down$1.44 at $86.38 per barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.