Global stock markets struggled Thursday following news that Europe's biggest economy Germany has entered recession, and after Fitch warned that the US debt standoff could threaten its gold-plated credit rating.
German gross domestic product shrank 0.3 percent in the first quarter after a downwardly-revised contraction of 0.5 percent in the prior three months, official data showed.
Equities were rattled, having already sunk the previous day on alarm over stalled US debt ceiling talks aimed at averting a painful default.
Frankfurt traded marginally lower, while London and Paris each lost 0.1 percent.
The European single currency recoiled to a two-month low at $1.0714 before clawing back ground.
"German sentiment took a hit this morning," Scope Markets analyst Joshua Mahoney told AFP, noting German's recession was led by declining household consumption and government spending.
"While many will see this contraction as a warning sign that Europe's largest economy will drag the region lower, the optimists will also look at these figures as a sign that higher rates are cooling consumption which will ultimately drive inflation lower."
Most Asian equities also sank on fears over the prospect of a US default, while oil prices retreated on profit-taking after three straight sessions of gains.