The Australian sharemarket traded in and out of the red before closing flat, saved by demand for defensive stocks.
This came after an EU official said recession in southern eurozone states was expected to get worse in 2013 and Japan slipped back into deflation.
The S&P/ASX 200 index closed 0.4 points up at 4316.1 points, with miners again finishing in the red as renewed eurozone jitters dampened the global growth outlook and investors prepared for a disappointment from US Federal Reserve chairman Ben Bernanke's Jackson Hole speech tonight.
European Central Bank Governing Council member Ewald Nowotny said the ECB would lower its eurozone forecasts for 2012 and 2013 next week, with contraction in the south and stagnation in France.
Japan's Nikkei index fell 1.5 per cent after the August PMI index contracted to 47.7 points from 47.9 and July industrial production fell one per cent. The Shanghai composite index was off 0.2 per cent at the close of the ASX.
On Thursday Shanghai spot iron ore fell another 1.8 per cent to $US88.70 a tonne, down 35 per cent in the past two months. Today steel rebar futures were off 0.2 per cent, while copper was little changed at $US7565 a tonne.
Last night European stocks fell 1.2 per cent on average and Germany's DAX index tumbled 1.6 per cent as consumer confidence slipped and German unemployment data which offered fresh evidence Europe's powerhouse economy was being dragged down by the regional crisis.
This weakness was underlined shortly before the ASX close when Germany reported a one per cent drop in July retail sales.
Spanish bond yields jumped 13 points to 6.59 per cent on concerns the Spanish economy was deteriorating as the country delayed formally requesting a bailout.
The US dollar rallied against most risk assets as few market watchers expect Mr Bernanke to provide firm guidance towards a third round of stimulus when he addresses a forum of central bankers at the annual Jackson Hole conference in Wyoming.
"Though no promises will be made by Mr Bernanke, we anticipate that the FOMC will move to ease policy further at the September 13 policy meeting by extending the late-2014 forward guidance on a near-zero fed funds rate out to mid-2015," HSBC chief US economist Kevin Logan wrote in a report. "Mr. Bernanke may provide some hints as to whether the FOMC is leaning toward even stronger action such as a new QE program."
The Australian dollar fell to a low of $US1.0280 before recovering to $US1.03, as the poor Chinese growth outlook and falling iron ore prices forced the unwinding of speculative holdings.
A Bloomberg report overnight suggested that the discovery of the biggest gas find in a decade along Africa's east cost could imperil some future LNG investment plans in Australia.
"No matter that it requires drawing a rather long bow to get to this conclusion, in particular considering the likely eight-year minimum lead time from gas discoveries to production, but at the moment all the mud being thrown at all things Australia seems to be sticking," National Australia Bank global head of currency strategy Ray Attrill said."This makes it hard to protest too loudly against current market price action."
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