World stocks ease on U.S. economy outlook

World stocks eased on Friday on a worsening outlook for the U.S. economy that also pushed the dollar to 7-month low against the yen and near a 2-month trough versus the euro.

The FTSEurofirst 300 index <.FTEU3> surrendered early gains to shed 0.1 percent after Asian stocks fell, with the Nikkei average <.N225> down nearly 3 percent for its worst one-day percentage loss in more than a month <.T>.

That came after Wall Street ended flat, led by a sudden turnaround in Goldman Sachs and BP, after spending much of Thursday in negative territory on an unexpected fall in regional factory activity and a third straight month of decline in producer prices raised concerns about deflation.

Shares in Goldman Sachs gained after the firm agreed to pay $550 million to settle civil fraud charges while BP's stock rose after it said it had capped an oil spill that started in April.

BP rose a further 3 percent in European trade, putting a floor under European losses.

The MSCI world equity index <.MIWD00000PUS> was flat at 285.78. The Thomson Reuters global stock index <.TRXFLDGLPU> fell 0.2 percent.

Concerns about the U.S. outlook overshadowed a strong start to the U.S. earnings season. JPMorgan Chase & Co beat expectations on Thursday.

Bank of America Corp, Citigroup and General Electric are among those scheduled to release results later on Friday.

Q2 SLOWDOWN

The earnings season is off to a very good start, but the big question remains: how bad will be the slowdown in the second half? Until we get a clear answer, the market will be prone to big swings like the ones we've seen over the past 20 days, said Philippe Gijsels, senior equity strategist at Fortis Bank in Brussels.

The dollar fell within a whisker of the July 1 low of 86.96 yen, its lowest since early December, as concerns mounted over the world's largest economy. Stop-loss sales were seen below 86.95 yen while bids were cited at 86.50 yen ahead of option barriers.

Growth-linked currencies such as the Australian and New Zealand dollars also fared poorly, falling 0.6 percent and 1.4 percent against the U.S. dollar, respectively.

The euro held near a two-month high of $1.2955 hit on trading platform EBS on Thursday, when it jumped 1.6 percent against the greenback.

Receding concerns about euro zone sovereign debt problems also buoyed the euro after smooth absorption of euro zone peripheral bond auctions earlier this week.

Lower U.S. Treasury yields, with the two-year yield falling to a record low of 0.58 percent on Thursday, also undermined the greenback.

Some said the dollar's declines could be limited.

The dollar's adjustment can be justified as the Fed may have to do more easing, but in the longer term it could start to benefit from safe-haven flows, said Jane Foley, research director at Forex.com.

Market players will keep an eye on U.S. inflation data is due out at 1230 GMT. Economists forecast June consumer price index to be flat on the month after falling 0.2 percent in May.

Bund futures were slightly lower at 128.62.

Oil slid for a third day on Friday toward $76 a barrel while gold held steady.

(Additional reporting by Blaise Robinson in Paris and Neal Armstrong in London; editing by John Stonestreet)