World stocks fell on Tuesday and the euro slipped closer to a four-year low against the dollar as expectations that slowing growth in China and the euro zone would hamper the global economic recovery hit risky assets.

European stocks fell more than 1 percent in the first hour of trading, with BP losing as much as 15 percent after its attempt to plug a disastrous oil leak in the Gulf of Mexico failed.

After May ended as the most volatile month of trading since the aftermath of Lehman Brothers' collapse in late 2008, investors focused on concerns that growth would slow in a euro zone struggling to rein in debt, in turn reducing demand for exports from economies like China, reducing production there.

A survey showed manufacturing activity in the euro zone expanded in May at a considerably more sluggish pace than in April, while separate data showed the pace of China's factory output eased last month.

There is very little reason at the moment for people to be adding more risk, said Justin Urquhart Stewart, director at Seven Investment Management. MSCI world equity index fell 0.9 percent on the day. The index lost nearly 10 percent since April, putting it on track for its biggest quarterly loss since March 2009.

The FTSEurofirst 300 index fell 1.7 percent while emerging stocks lost 1.9 percent.

Bund futures rose 50 ticks while the spreads between Italian and German 10-year government bonds yields rose as German unemployment fell faster than expected in May.

The dollar rose 0.6 percent against a basket of major currencies while the euro fell 1 percent to $1.2175, around half a cent above the four-year low it hit last month.

The single currency has been under pressure as concerns grew that the region's sovereign debt problems and slowing growth will usher in a new round of writedowns for the banking sector.

The European Central Bank warned on Monday that euro zone banks faced up to 195 billion euros ($239 billion) in a second wave of potential loan losses over the next 18 months due to the financial crisis, and said it had increased purchases of euro zone government bonds.

The situation remains difficult for the euro, Commerzbank said in a note to clients.

Concerns about the consequences of the savings measures that have been initiated in many countries demonstrate how bad sentiment for the joint currency currently is.

Underlining contagion risks from the euro zone crisis, China warned on Monday that global growth remained vulnerable to sovereign debt risks and the possibility of a second downturn.

Such global growth concerns weighed on oil, with U.S. crude oil losing 1.9 percent to $72.58 a barrel.

(editing by John Stonestreet)

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