In Europe preliminary manufacturing and service sector data across the 17-nation euro area showed the downturn in the private sector was becoming entrenched as falling orders and rising unemployment hit confidence.

The data also showed Germany's private sector shrank in June for the second month running, with manufacturing activity hitting a three-year low.

"It is a worryingly steep downturn we are seeing (in Europe) and it is spreading from the periphery, which has been falling at an increased rate, through to Germany," said Chris Williamson, chief economist at Markit, which compiled the data.

Earlier, a similar survey of private sector activity in China compiled by HSBC showed its giant factory sector had shrunk for an eighth straight month in June on weaker demand for exports.

MSCI's global equity index .MIWD00000PUS fell 0.4 percent to 309.95 points, snapping a week of gains, while Brent crude oil touched an 18-month low of $91.62 a barrel, and copper dropped 1.6 percent to $7,425 a tonne.

The falls began after the Fed announced it had chosen to extend its current bond-buying program, dubbed "Operation Twist", rather than implement more quantitative easing as some had hoped.

The U.S. central bank also announced it was lowering its 2012 and 2013 growth and employment forecasts for the world's largest economy, and said it would consider more stimulus measures if the situation worsened.

The dollar firmed against a basket of major currencies .DXY after the Fed's decision and stood at 81.63 .DXY on Thursday, above a one-month low of 81.186 earlier this week.

However, the weak data from Europe saw the single currency drop 0.4 percent to $1.2650, down from a high of $1.2744 posted on Wednesday.

The FTSEurofirst 300 index .FTEU3 of top European company stocks was down 0.7 percent at 1,007.12 points after hitting its highest closing level since May 11 at 1,022.52 points on Wednesday.

SPAIN IN THE FRAME

Spain's growing funding problems were also undermining sentiment in European markets.

The government sold 2.2 billion euros ($2.8 billion) of new medium-term bonds on Thursday, with yields on the five-year debt rising to 15-year highs, hours before the government is expected to finalize a multi-billion euro rescue package for its banks.

Sources have told Reuters Spain's bank audit will say that up to 70 billion euros ($89 billion) is needed to recapitalize the banks, but Madrid is expected to ask for more to try and convince markets that it has the problem covered.

Signs that the euro zone was moving to help Spain have helped ease pressures in the debt market, with 10-year Spanish government bond yields falling 9 basis points to 6.67 percent on Thursday after rising to close to 7.3 percent last week.

But German Bund prices were also on the rise, after hitting their lowest level in nearly eight weeks on Wednesday, sending 10-year yields down three basis points to 1.58 percent.

Euro area finance ministers are due to meet later, and among the long list of items on their agenda is a proposal to extend a deadline for Spain to meet its budget deficit target, and a plan to allow Europe's new bailout fund to buy government debt.

The debt-purchasing plan, floated by Italian prime minister Mario Monti at this week's G20 summit, is controversial and may not be decided until an EU leaders meeting next week, but has taken some pressure off both Italian and Spanish debt markets.

($1 = 0.7873 euros)

(Additional reporting by; Editing by Will Waterman)

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