Industrial output slumped across Europe in February, with German production set to fall further as one of the country's banks came close to nationalisation on Thursday.
The grim European data followed Japan's record $154 billion plan to stimulate its economy which boosted Asian shares to a three-month closing high.
But investors' caution ahead of a Bank of England rate decision later on Thursday meant that European shares failed to follow the strong gains.
In Germany, industrial production fell by 2.9 percent in February and a recent slump in orders pointed to further weakness in output in the coming weeks, the Economy Ministry said.
"February's drop in German industrial production confirms that the sector is still in dire straits and suggests that GDP could fall much more sharply in Q1 than in Q4," Jennifer McKeown of Capital Economics said.
Italian industrial output dived a steeper-than-expected 3.5 percent in February from the month before, a tenth consecutive decline, while Sweden and Finland posted more sharp falls as weak demand dealt further blows to economies already in recession.
In Britain, the Bank of England, which has opted to spend up to 75 billion pounds buying assets to fuel growth, is expected to keep interest rates on hold at a record low when it meets later on Thursday.
The weakening economy forced more restructuring and capital raising at commercial banks in Europe and Japan.
In Germany, the government offered to take over stricken bank Hypo Real Estate, the country's highest profile casualty of the financial crisis and potentially the first nationalisation of a German bank in the postwar era.
Berlin has long signalled its intention to take control of the Munich-based lender to restructure it and help protect Germany's covered bond market, one of the world's biggest.
Dutch financial services giant ING said it would sell up to 8 billion euros ($10.62 billion) in assets to reduce risk and focus on Europe, while in Britain Barclays Plc is expected to announce the sale of asset management unit iShares.
Japan's third-largest bank, Sumitomo Mitsui Financial Group , is likely to raise up to $8 billion and forecast a net loss of more than 3 billion for the year just ended, sources said.
European shares pared earlier gains as oil stocks retreated and investors grew cautious ahead of the BoE rate decision and key U.S. jobless figures.
European Central Bank President Jean-Claude Trichet urged countries to act responsibly with exchange rate policies and said the central bank still had some leeway to cut its main interest rate.
GREEN BOOST
Japanese government bonds sank after the ruling Liberal Democratic Party said the 15.4 trillion yen ($154 billion) in new spending on a range of subsidies, loans and other stimulus should be paid for by issuing up to $110 billion in new bonds.
Much of the new spending was focused on the environment and jobs. Shares in automakers and solar power-related firms rose as the plan included measures to promote the use of solar panels and fuel-efficient cars.
"The contents look like temporary measures to front-load demand, but they do not pay attention to increasing productivity on the supply side," said Masamichi Adachi, senior economist at JPMorgan.
The stimulus spending — 3.1 percent of the gross domestic product of the world's second-largest economy — is to battle Japan's deepest recession since World War Two as exports and profits crumble.
