Asian shares and the euro extended losses on Friday, with Japan's Nikkei poised to log its longest weekly losing streak in two decades, as weak Chinese factory data highlighted concerns that the euro zone debt crisis will further undermine global growth.
The data came amid escalating worries about Spain's banking system and the fate of Greece within the euro bloc that have spurred a flight to safe-haven assets, boosting the dollar and the yen while pushing dollar-sensitive commodities lower.
MSCI's broadest index of Asia-Pacific shares outside Japan fell as much as 1.1 percent before paring some losses to stand down 0.5 percent, on track to eke out a weekly gain after three straight weeks of losses.
European shares were seen mixed, with spreadbetters' predictions for major European markets ranging from a drop of 0.2 percent to a rise of 0.3 percent. U.S. stock futures were down 0.5 percent.
Shares in Australia, which is highly dependent on demand from China, also slipped as much as 1.1 percent before paring most losses for a decline of 0.3 percent.
Hong Kong shares, however, rose largely on short-covering in financials although most cyclicals such as materials and mining firms were weak on the disappointing Chinese manufacturing data.
"China's data only added to the negative tone in the market as it showed the country needs to prop up its weakening domestic demand, which means demand for commodities will remain sluggish until proper measures are taken," said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory Co.
China's official purchasing managers' index (PMI) fell to 50.4 in May from April's 13-month high of 53.3, weakness that was confirmed by a separate HSBC's PMI survey showing a seventh consecutive month of contraction in the manufacturing sector, signalling a steeper-than-expected deterioration in demand at home and abroad.
The euro hit a fresh 23-month low against the dollar at $1.2324 and the Australian dollar fell to an eight-month low around $0.9650.
Du Ying, vice chairman of the National Development and Reform Commission, China's most powerful economic planner, said on Friday the country aims to boost domestic demand to stimulate economic growth.
But Market Risk's Niimura said he believed China may wait until the situation in Europe is clearer as a slew of events this month will likely affect how Europe deals with the latest phase of its debt crisis. These include a June 17 election in Greece, a European summit and a G20 summit.
Japan's Nikkei slid 1.3 percent, undermined by a yen strengthening on Europe's debt woes, on track to fall 1.8 percent on the week for its ninth straight week of losses.
"The problem is that although Japanese stocks are technically cheap according to past barometers, the market has always moved more on foreign factors than domestic ones," said Yutaka Miura, senior technical analyst at Mizuho Securities.
FLIGHT TO DOLLAR
The China data comes on the heels of dismal reports on U.S. labour markets, putting investors on edge about the pace of the U.S. recovery ahead of Friday's nonfarm payroll figures, which will likely show 150,000 jobs were added in May, up from 115,000 in April, and the unemployment rate steady at 8.1 percent.
"I don't think Friday's (nonfarm payroll) numbers are going to be any better. It's been a dismal week so far, and we haven't hit bottom," said Jim Ritterbusch, president at Ritterbusch & Associates, saying that oil prices were likely to see more downside pressures.
U.S. crude fell 0.1 percent to $86.46 a barrel after marking its biggest monthly decline since December 2008 in May. Brent crude futures eased 0.1 percent to $101.82.
The flight to safety lifted the dollar index, measured against a basket of major currencies, above 83.3 on Friday, its highest since August 2010.
Spot gold fell 0.3 percent to $1,557.54 an ounce on the sluggish euro. But Niimura and other analysts said the euro zone's deepening crisis will eventually draw investors back to bullion, a traditional alternative investment in times of crisis.
The euro was only few pips higher than an 11-1/2 year low of 96.48 yen marked on Thursday. The yen, also seen as a safe haven, was at 78.45 yen, off a 3-1/2 month high of 78.21 yen touched the day before.
EU, ECB FIRE WARNINGS
The European Central Bank on Thursday urged for a joint guarantee on bank deposits across the euro zone to stem bank runs while the European Commission's top economic official, Olli Rehn, warned the single currency area could disintegrate without stronger crisis-fighting mechanisms and tough fiscal discipline.
The cost of insuring against a Spanish default hit 600 basis points for the first time on Thursday and the country's funding costs remained elevated near levels seen unsustainable for the economy.
Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 3 basis points.
