GLOBAL MARKETS-Grim China data, Italy woes smother global stocks recovery

* Pan-European STOXX 600 .STOXX index slips 0.4%
* U.S. futures point to lower opening
* China industrial output, retail sales fall short of
forecasts
* Oil surge stalls on bigger-than-expected U.S. inventory
buildup
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Karin Strohecker
LONDON, May 15 (Reuters) - A global equity recovery set off
by softer rhetoric from U.S. President Donald Trump on the trade
dispute with Beijing waned on Wednesday as grim Chinese data and
fresh Italian debt woes cast a shadow over global markets.
Concern that the world's two biggest economies could end up
in a protracted trade war has been keeping markets on edge.
Investors took some comfort from Trump's calling the dispute
with Beijing "a little squabble" on Tuesday and insisting talks
had not collapsed. But data from China showing surprisingly weak retail sales
and industrial output growth weighed on markets and added
pressure on Beijing to roll out more stimulus. Adding to the woes are fears over Italy's fiscal situation
after Rome said it was ready to break European Union fiscal
rules to spur employment. Italian stocks fell .FTMIB 0.8% to lead European stocks
lower. Germany's DAX .GDAXI eased 0.4%, shrugging off data
confirming the German economy had returned to growth in the
first quarter, which helped the euro zone economy accelerate
quarter-on-quarter France's benchmark
.FCHI slipped 0.3% while London's FTSE .FTSE traded flat.
"Investors had been waiting for data to confirm signs of
stabilisation in the Chinese economy which, in turn, would
bolster expectations that the global economy could start making
a sustainable recovery," said Neil McKinnon at VTB Capital.
"The recent escalation in tariffs makes that more difficult
and can only add to investor risk aversion and increase the risk
of a more prolonged economic downturn."
U.S. futures ESc1 pointed to a softer open on Wall Street,
following healthy gains the day before. MSCI's broadest index of
world stocks traded flat .MIWD00000PUS .
In currency markets, the Australian dollar AUD= - a proxy
of China-related trades - fell to its lowest in more than five
months.
The U.S. dollar traded at 109.38 yen JPY= , having pulled
away from Monday's three-month low of 109.020, when trade war
worries boosted demand for the safe-haven Japanese
currency. FRX/
The Chinese yuan was down at 6.9138 per dollar in offshore
trade CNH=D4 , grinding back towards Tuesday's five-month
trough of 6.9200. The euro held at a one-week low EUR= while
the dollar index against a basket of six major currencies was
nearly flat at 97.555 .DXY after gaining 0.2% the previous
day.
The pound GBP= revisited a two-week low hit on Monday
after Prime Minister Theresa May's spokesman said late on
Tuesday she planned to put her proposed Brexit deal -- already
rejected three times -- before parliament in early June.
In commodities, U.S. crude futures fell nearly 1 percent to
$61.25 per barrel CLc1 after the American Petroleum Institute
(API) reported a bigger-than-expected increase in crude
inventory. O/R
U.S. crude stockpiles rose by 8.6 million barrels in the
week to May 10 to 477.8 million, compared with expectations for
a decrease of 800,000 barrels. Brent crude LCOc1 lost 0.4% to trade at $70.96 per barrel.
Brent and U.S. crude futures had surged the previous day
after Saudi Arabia said explosive-laden drones launched by a
Yemeni-armed movement aligned with Iran had attacked facilities
belonging to state oil company Aramco.