European and U.S. stocks fell Thursday as weak economic data overshadowed higher growth forecasts from the International Monetary Fund.

Britain's FTSE 100 was down 0.7 percent at 5,095.97, Germany's DAX fell 0.6 percent to 5,641.11 and France's CAC-40 was 0.9 percent lower at 3,762.24.

Asian markets closed mostly lower after a Japanese survey showed manufacturers still think they need to lay off workers and U.S. indices dropped on the open - the Dow Jones industrial average fell 0.4 percent to 9,673.66 and the Standard & Poor's 500 lost 0.4 percent to 1,052.41.

Market sentiment was hurt by a weekly U.S. unemployment report showing new jobless claims rose more than expected to 551,000, evidence that jobs remain scarce.

With the crucial payrolls data for the month of September due Friday, the figure offset more upbeat data showing U.S. consumer spending surged by the largest amount in nearly eight years in August. Analysts cautioned that the rise in spending was due mostly to government incentives for auto purchases and would not last.

Economic data out of Europe was gloomy, with the unemployment rate hitting a fresh 10-year high in August at 9.6 percent, up from 9.5 percent in July. Some 15 million people were seeking work in the euro area in August, 165,000 more than in July.

“We doubt that the labor market correction has run its course,'' wrote Jennifer McKeown, economist at Capital Economics, in a note.

She said that even if unemployment soon stops rising, earlier increases will hurt wage growth.

“In all, then, while the outlook for exports and industry is improving, there is so far little prospect of a strong pick-up in consumer spending growth,'' said McKeown.

That was highlighted by weak German retail sales - they fell 1.5 percent on the month in August.

“All in all ... private consumption is more likely to be a drag on GDP growth in the short term,'' said Alexander Koch, an economist at UniCredit in Munich.

IMF releases World Economic Outlook

The European data was released just as the IMF unveiled its latest World Economic Outlook report, which raised its global growth outlook for 2010 to 3.1 percent from 2.5 percent previously.

The IMF said the world was recovering from the crisis faster than expected, but warned that the improvements were in part due to stimulus measures by governments and central banks and being driven by Asia.

Recovery in Europe would be sluggish, in part due to rising unemployment, as highlighted in Thursday's economic figures. In Asia, economic readings were mixed. Surveys showed Chinese manufacturing was expanding and big manufacturers in Japan were less pessimistic. Yet after making drastic cuts to workers, Japanese companies still say they have too many employees and too much production capacity.

“We're still on the less bad trend, but it's a good time to take some money off the table,'' said Song Seng Wun, economist at CIMB-GK in Singapore. “After a very decent September, we'll have to regroup and rethink our strategy for the next quarter.''

Earlier in Asia, Japan's Nikkei 225 stock average dropped 1.5 percent to 9,978.64 and South Korea's Kospi fell 1.7 percent to 1,644.63.

Indices in Australia and Singapore were lower, but stocks in Taiwan and Indonesia edged up.

Hong Kong and mainland China markets were closed for the 60{+t}{+h} anniversary of Communist rule. Hong Kong reopens Friday but mainland markets are closed until October 9.

Crude oil prices were steady in European trade, with benchmark crude for November delivery up 1 cent at $70.62. The contract soared $3.90 overnight. The dollar was lower at 89.55 yen compared with 89.70 yen Wednesday night, while the euro slipped to $1.4562 from $1.4636.

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