Europe set for worst quarter since 2008

World stocks fell on Friday, with European shares set to post their biggest quarterly decline since the collapse of Lehman Brothers three years ago, as investors grappled with a deepening euro zone debt crisis and a slowdown in global growth.

The euro retreated and was on course for its biggest monthly drop in nearly a year, dipping on weak retail sales data from Germany a day after approval from the country’s parliament of new powers for Europe’s bailout fund gave the currency only a fleeting boost.

Fears the debt crisis will spiral and the global economy slow caused investors to slash bets on risky assets in the quarter to the end of September.

The pan-European FTSEurofirst 300 index fell 1.1 percent on Friday, on course for its worst quarterly loss since the months following the collapse of Lehman Brothers three years ago.

“Short-term, we still have the same prospects: the timing of a (likely) Greek default, the nature of it, how shared or otherwise; the uncertainty of whether the (second Greek bailout) package needs to be revisited,” said Philip Isherwood, head of equity strategy, Europe and UK, at Evolution Securities.

The MSCI world equity index fell 0.8 percent. It has dropped more than 16 percent over the quarter, the biggest drop since the last three months of 2008.

Asian equities also extended the worst monthly performance since the most volatile days of the global financial crisis in October 2008. Chinese shares racked up sharp losses amid fears of a property market correction.

The euro fell to fresh session lows against the dollar, with traders also saying comments from German Economy Minister Philipp Roesler that the Bundestag did not seem willing to approve leveraging the euro zone’s bailout fund were weighing on the single currency.

The euro was last down 0.6 percent against the dollar at$1.3504, having fallen to a day’s low of $1.3486 earlier.

“We don’t expect any concrete decisions from next week’s Eurogroup (finance ministers’) meeting. But we could get a positive statement that policymakers will help the euro zone periphery, which could help sentiment,” said You-Na Park, currency strategist at Commerzbank in Frankfurt.

She said any euro gains on such optimism would likely be capped around $1.37.

The retreat in riskier assets helped safe-haven German government bonds higher after five consecutive sessions of losses as investors rebalanced their portfolios on the last day of the month and quarter.

German 10-year government bond yields were down 4 basis points at 1.97 percent, tracking benchmark U.S. Treasury yields which were 3 bps lower at 1.97 percent.