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A man walks in front of the electronic stock board of a securities firm in Tokyo, Japan, Tuesday, Oct. 18, 2011. Asian stock markets tumbled in early trading Tuesday.

Itsuo Inouye/AP

World stocks stumbled from the previous day's 1-1/2 month high on Tuesday and government bonds rose as slower-than-expected Chinese growth data and a warning on France's triple-A sovereign credit rating prompted investors to cut risks.

The spread between French and German 10-year government bond yields rose to a 16-year high after rating agency Moody's said it may slap a negative outlook on France's credit rating in the next three months. Concerns have been rising over the costs to Europe's major economies if they have to bail out more banks or weaker euro zone members.

China's annual gross domestic product growth eased to 9.1 per cent in July-September, slightly below forecasts of 9.2 per cent, indicating the world's second-largest economy expanded at its slowest pace since the second quarter of 2009.

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"Investors' resolve is being tested quite considerably. The situation in Europe is still overhanging in a very large fashion and the Chinese data does add another tick in the box of worries for investors to digest," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"The kind of backdrop we have got at the moment is creating ideal conditions for people to take profits."

MSCI world equity index fell 1 per cent. The benchmark index is still up more than 11 per cent after hitting a 15-month low earlier this month.

European stocks fell 1.3 per cent.

Optimism over a key European Union summit on Oct. 23 waned after German Finance Minister Wolfgang Schaeuble said on Monday that even though European governments would adopt a five-point platform to address the crisis, a definitive solution would not be reached at the summit.

"The nervousness is very high and negative comments will have a larger impact than positive comments. The balance of risk is we're definitely going to see more positive performance in Bunds," Nordea analyst Niels From said.

Emerging stocks lost more than 2 per cent.

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Investors are also eyeing corporate earnings. IBM reported third-quarter revenue that met forecasts, while lender Wells Fargo's results fell short of expectations.

Of the 45 companies in the S&P 500 that have reported earnings, 62 per cent have beaten analyst expectations, according to Thomson Reuters data.

VIX, Wall Street's so-called fear gauge, rose 18.2 per cent to 33.39 on Monday, its highest one-day jump since August.

U.S. crude oil fell 0.4 per cent to $86.03 a barrel.

Bund futures gained 86 ticks. The French/German 10-year government bond yield spread widened to a euro era record of 101 basis points. French debt also underperformed its triple-A rated peer the Netherlands.

The dollar gained 0.2 per cent against a basket of major currencies.

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The euro fell 0.15 per cent to $1.3710.

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