The euro and Asian stocks slid on Tuesday with creeping suspicion that a peak in the recovery has passed and slowing growth in China and Europe in the second half of the year will be obstacles to risky trades.

After the most volatile month of trading since the wake of Lehman Brothers' failure in the fall of 2008, investors now focused on pricing in to what extent reduced demand from the more fiscally austere euro zone would hit production in economies like China and South Korea.

Dealers brushed aside stronger-than-expected May export growth figures from Korea, which precede the rest of Asia, and solid Australian retail sales, taking more interest in forward-looking manufacturing indexes from China and India.

China's factories scaled back production last month and eased back hiring in response to a critical drop in new orders, an official survey showed on Tuesday.

The result indicates weakening of momentum in the manufacturing sector and confirms our expectation that GDP growth will slow sharply in Q2 and continue decelerating in Q3, Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong, said in a note.

The Australian dollar dropped ahead of a Reserve Bank of Australia policy meeting, at which the central bank that had led the way in rolling back stimulus is expected to stay on hold and warn of economic uncertainty because of the euro sovereign debt crisis.

Declines in the equity markets were modest, though cyclical sectors such as technology and consumer discretionary appeared more vulnerable to selling pressure.

Japan's Nikkei share average fell 0.6 percent, with Fast Retailing <9983.T>, which owns the Uniqlo casual-clothing line, leading the index lower.

The Nikkei tumbled 11.7 percent in May, the largest monthly drop since a 23.8 percent plunge in October 2008.

The MSCI index of Asia Pacific ex-Japan stocks <.MIAPJ0000PUS>, which has been underperforming world equity markets <.MIWD00000PUS> so far this year, slipped 0.6 percent, with the IT sector the biggest drag.

U.S. stock futures were down 0.6 percent after a long holiday weekend in the United States and Britain.

There were more than enough reasons to keep winding down portfolio risk, especially after the European Central Bank warned overnight of a second wave of writedowns at lenders of up to 195 billion euros.

The euro was down 0.4 percent to $1.2260, about a cent away from a four-year low hit against the dollar last month. The currency is down 14 percent so far this year.

Traders were not in a mood to sell Treasuries or gold, with risk reduction still the order of the day. The benchmark yield on the U.S. 10-year note was at 3.30 percent, down around 50 basis points since the end of March when fears about Europe's fiscal health really picked up.

Gold climbed 0.5 percent to $1,220 an ounce, having rebounded about $45 in the last week.

(Editing by Kazunori Takada)

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