But activity was limited with many markets in Asia and Europe closed for the May Day holiday.

The MSCI's world equity index .MIWD00000PUS was down just 0.1 percent to 328.40, as it added to losses of about 1.5 percent in April. The stronger yen hit Japan's export-related equities, sending the Nikkei index .N225 to a 2-1/2 month closing low.

"In general, stock markets and risk assets seem to be extremely resilient in the face of the news flow which has undoubtedly been in the more negative nature," James Ferguson, strategist at Westhouse Securities, said.

In foreign exchange markets, a view that the weaker growth outlook could encourage the U.S. Federal Reserve to consider further easing monetary policy helped send the dollar .DXY to a two-month low against a basket of currencies.

Against the Japanese yen it fell to a low of 79.64 yen, its weakest point since February 21.

ECONOMIC CLOUDS

Worries about the health of the global economy have resurfaced since last week's initial releases of U.S. and U.K. first-quarter growth figures disappointed the market.

Business sentiment surveys and data across the euro zone have also pointed to a worsening outlook as government austerity measures bite. This came into sharp focus on Monday when Spain officially joined a long list of European nations in recession.

The weakness in the euro zone was cited as a big factor behind a dip in Britain's manufacturing activity in April, seen in the latest Manufacturing Purchasing Managers' Index (PMI), a leading indicator of economic activity, published on Tuesday.

The UK PMI dropped to 50.5 in April from a downwardly revised 51.9 in March, keeping the sector just above the 50 level which separates growth from contraction.

"It seems that weaknesses in our major trading partner, the euro zone, are starting to hit home," said Rob Dobson, senior economist at Markit, which compiles the PMI survey.

Over the past 24 hours, Australia and Canada, whose economies are closely linked to demand in the global economy, have both added to the concerns.

The Reserve Bank of Australia cut its official interest rates by a surprisingly aggressive half point to 3.75 percent, due to sluggish economic growth and lower than expected inflation.

The announcement sent the local dollar down about three-quarters of a cent to $1.033 and government bond yields to 60-year lows.

Canada said its economic output dropped by 0.2 percent in February from January, surprising analysts who had expected a 0.2 percent increase and dampening speculation the Bank of Canada was preparing to shift to a tighter monetary policy.

But against this, China's Purchasing Managers' Index (PMI) rose to a 13-month high in April, signaling the world's second- largest economy has found a footing and may be recovering from a first-quarter trough.

"I think it's not all bleak," Mike Lenhoff, chief strategist at Brewin Dolphin, said. "Europe is stuck in a bit of a dump at the moment ... but outside of Europe life goes on. The earnings results are pretty good out of America."

The U.S. ISM manufacturing index later on Tuesday and non-farm payroll figures on Friday will be next to offer investors clues on the shape of the U.S. economy and whether the Fed will have to lean towards offering more support.

The European Central Bank's policy meeting on Thursday precedes weekend elections in France and Greece that could determine future progress in the euro zone's austerity efforts, and may prompt more growth-oriented policies.

Meanwhile commodity markets were caught between the conflicting signals of a gradual recovery in China and a rise in worries about the health of the U.S. economy, the world's top two consuming nations.

Brent crude held above $119 a barrel while U.S. crude CLc1 ticked up 3 cents to $104.90.

Copper traded near $8,400 a metric tonne (1.1 ton) after rising to its highest level in nearly a month on Monday. Gold inched up to a two-week high, supported by weakness in the dollar.

(Additional reporting by Toni Vorobyova; Editing by Anna Willard and David Holmes)

• A Permanent Economic Emergency