Stronger-than-expected Chinese growth data spurred concern on Thursday about tighter monetary policy, prompting a sell-off in equities led by emerging markets.

The euro dipped on profit-taking after reaching two-month highs in the previous session but then trimmed losses as speculation grew that the euro zone's rescue mechanism for fiscally troubled peripheral states might be strengthened.

Chinese growth soared past forecasts and inflation slowed less than expected in the fourth quarter, prompting worries that the government may intensify tightening. Disappointing U.S. earnings added to the mix.

The potential for measures to slow Chinese growth ending up as a hard landing is one of the major risks cited by investors heading into 2011.

A lot of Asian economies, and especially China, (are) overheating. People have invested heavily in commodity shares and any disappointing news might provoke a ... correction, said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

Emerging market stocks were the main victim, with MSCI's benchmark index <.MSCIEF> losing more than 1 percent and slipping into negative territory for the year.

Overall, global stocks as measured by MSCI <.MIWD00000PUS> lost half a percent.

In Europe, the FTSEurofirst 300 <.FTEU3> was down 0.4 percent, adding to 1.3 percent losses on Wednesday. Mining stocks were among the biggest losers on the assumption that demand for basic resources would fall if China's growth is reined in.

Earlier, Japan's Nikkei <.N225> closed 1.1. percent lower.

Overnight, the U.S. S&P 500 <.SPX> suffered its biggest decline in nearly two months as Goldman Sachs posted a 53 percent drop in profit on a tumble in trading revenue and Wells Fargo came in below some analysts' estimates.

EURO SLIPS, THEN RECOVERS

The euro slipped against the dollar with investors booking profits on the single currency's rally to a two-month high.

The single currency slipped as much as 0.2 percent to $1.3420, retreating from $1.3539 hit on Wednesday, its strongest since late November.

It later recovered to trade around $1.3470, unchanged on the day, amid optimism over the shape of possible reforms to the euro zone rescue fund which also kept debt from the euro zone's lower-rated issuers steady after outperformance in the previous session. German debt prices slipped.

The Financial Times Deutschland on Thursday said euro area finance ministers had discussed a plan on Monday at a regular meeting in Brussels to allow Athens to buy back its own debt using credits from the euro zone's rescue fund.

This has the potential to really get the uncertainty out of the air ... but so far we just lack the facts which hinders further (debt) spread tightening, said David Schnautz, rate strategist at Commerzbank.

(Additional reporting by Naomi Tajitsu and Atul Prakash; Editing by John Stonestreet)

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