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LONDON, Nov 15 AFP

November 16 2012, 04:55AM

Europe's main stock markets have retreated following news the 17-nation eurozone economy fell into recession in the third quarter as a result of the region's sovereign debt crisis.

Investor sentiment was also dented on Thursday by concern over the looming "fiscal cliff" in the United States, and lingering fears over a potential Greek default that could send fresh shockwaves through financial markets.

In Frankfurt the DAX 30 closed down 0.82 per cent to 7,043.42 points, while in Paris the CAC 40 fell 0.52 per cent to 3,382.40 points.

London's FTSE 100 index of leading companies dropped 0.77 per cent to 5,677.75 points, hit also by worse-than-expected British retail sales.

The European single currency rose to $1.2779 from $1.2734 late in New York on Wednesday. Gold prices fell to $1,710 an ounce from $1,725.75 on the London Bullion Market.

The eurozone tipped into recession in the third quarter or three months to September, with the economy shrinking 0.1 per cent from the second quarter, when it contracted 0.2 per cent, official data showed on Thursday.

"It's been another difficult day for European equity markets weighed down by ongoing concerns about the US fiscal cliff after a tougher line from President Obama towards the extension of some of the Bush tax cuts, and disappointing eurozone GDP data for Q3 that confirmed a double-dip recession," said Michael Hewson, senior market analyst at CMC Markets UK.

Recession, defined as two consecutive quarters of decline, comes as unemployment is soaring to record highs in Spain and Italy.

Separate data showed that the economy of eurozone engine Germany grew by just 0.2 per cent in the third quarter, in line with expectations.

"Much of the news of slowing growth in the eurozone is priced in, and a 0.1-per cent drop is not as bad as some of the most bearish of forecasts by economists who were looking for 0.4-0.6 per cent contraction," said Ishaq Siddiqi, analyst at ETX Capital trading group.

But Hewson said "investors remain more worried about the data for Q4, which continues to disappoint."

On the corporate front, shares in BP dipped 0.08 per cent to 425.4 pence after the British energy giant said it had agreed to pay more than $US4.5 billion ($A4.36 billion) in US fines related to the devastating 2010 Gulf of Mexico oil spill, including a record $US4 billion to settle criminal claims.

The company's reputation was ravaged two-and-a-half years ago after an explosion on the BP-leased Deepwater Horizon rig killed 11 workers and sent millions of barrels of oil spewing into the sea.

US stocks were down in midday trading, with the Dow Jones Industrial Average off 0.51 per cent to 12,507.20 points.

The broad-market S&P 500 slid 0.44 per cent to 1,349.50 points, while the tech-rich Nasdaq Composite fell 0.59 per cent to 2,829.88 points.

Asian stock markets mostly fell on Thursday in volatile trade, but Tokyo was lifted by the weak yen and after Japanese Prime Minister Yoshihiko Noda called a national poll for December 16.

The yen touched a seven-month low against the dollar as the front-runner to become Japan's next prime minister said he would pressure the Bank of Japan embark on "unlimited easing" to stoke the economy.

The dollar rose to 81.46 yen at one point during trading, before slipping to 81.18, still up considerably from 80.23 on Wednesday.

Hong Kong shares fell 1.55 per cent, Sydney shed 0.89 per cent and Seoul slumped 1.23 per cent, but Tokyo soared 1.90 per cent.

China meanwhile unveiled its leaders for the next 10 years, with investors hoping for some clarity on future policy in the world's number two economy.

However, Shanghai shares fell 1.22 per cent as dealers bet that the nation's new leadership would not immediately embark on economy-boosting measures.

China's all-powerful Communist Party on Thursday unveiled a new seven-man leadership council steered by Xi Jinping to take command of the world's number two economy for the next decade.