By Susan Mathew and Shreyashi Sanyal
(Reuters) - European stocks tumbled to a six-month low on Wednesday, as an inversion in the U.S. yield curve following bleak data out of major economies including Germany and China pointed to a looming recession.
Slumping exports sent Germany's economy into reverse in the second quarter, while Chinese industrial output growth cooled to a more than 17-year low in July, underscoring the impact of a bruising U.S.-China trade war on global growth.
Industrial data from the euro zone in June also had a poor showing.
"A lot investors may look at this morning's (yield) inversion and consider it an exit sign," said Mike Loewengart, vice president of investment strategy at E*TRADE Financial Corp.
The benchmark pan-European STOXX 600 <.STOXX> index closed down 1.7%, having touched its lowest since Feb. 15, with indexes in Germany <GDAXI>, France <.FCHI>, and political crisis riddled Italy <.FTMIB> falling more than 2%.
Yields on two-year treasury notes rose above the 10-year yield for the first time since 2007, a metric widely viewed as a classic recession signal. That saw government borrowing costs in Germany fell to record lows. [US/] [GVD/EUR]
The downbeat mood in markets came after a rare day of relief after Washington delayed tariffs on certain Chinese goods.
"Its reasonably evident by Germany's GDP contraction and the dreadful Eurozone IP data that the U.S.-China tariff war is hurting Germany's export-skewed manufacturing sector, which is now bringing forward a real debate on fiscal stimulus in Germany," wrote Stephen Innes, managing partner at VM Markets.
"But on a positive note, embarking on an aggressive fiscal programme while having the markets paying you to do so, given negative-yielding bonds, it might not but such a bad thing at all," Innes added.
All sectors were well in the red, with trade-sensitive technology <.SX8P> slumping 3%. The Frankfurt-dominated auto index <.SXAP> followed with a 2.8% drop, while falling yields took banks <.SX7P> to a more than three-year low.
Stalled growth across Europe has been led by a slowdown in the eurozone's largest economy, Germany, while the fallout from Washington's trade war with China, Brexit uncertainty, and Italy's political woes have also plagued the trading bloc.
The pan-regional index has lost more than 5% so far this month, on course to match a 5.7% tumble in May which was its biggest decline in more than three years.
Limiting the index's losses were gains in some consumer staples, healthcare and utility stocks, as investors turned to defensive plays.
Balfour Beatty <BALF.L> topped the STOXX 600, up 9.3% after the British infrastructure company reported higher first-half underlying pretax profit and increased its annual cash forecast.
(Reporting by Agamoni Ghosh, Shreyashi Sanyal and Susan Mathew in Bengaluru; Editing by Bernard Orr and David Holmes)