The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to 49.6 in January, from December's 50.5, suggesting a mild slowdown at the end of 2013 has continued into the new year.
"The weak flash PMI will inevitably inflame China slowdown worries, but this is only one data point," said Linus Yip, a strategist with First Shanghai Securities in Hong Kong.
"If more data start to also show a deeper slowdown, Beijing may be forced to stimulate in order to maintain a stable basis for growth that they need to execute reforms.
Shanghai shares slipped 0.5 percent (.SSEC), though investors were still relieved that the country's central bank was flooding money markets with cash to ease a credit squeeze.
Worst hit was the Australian dollar which shed a third of a U.S. cent to $0.8795 as speculators sold it as a liquid proxy for growth in the Asian region.
MSCI's broadest index of Asia-Pacific shares outside Japan also lost 1.1 percent, while Australia's main index (.AXJO) dropped 1 percent.
Japan's Nikkei (NIK:^9452) surrendered early gains to be down 0.5 percent on the day. The news from Japan had been better, with a Reuters survey of business sentiment improving for a third straight month in January to reach a high last seen in 2010 as optimists far outnumbered pessimists.
Later Thursday, Europe has its own version of early PMIs along with a round of unemployment figures.
The Eurozone composite PMI is seen edging up to 52.4 in January, from 52.1, led mostly by strength in Germany while France could again lag behind.
RATE OUTLOOKS DIVERGE
In currencies, it was all about central bank expectations. Sterling surged after a sharp fall in UK unemployment stoked speculation the Bank of England would have to bring forward the day when it starts hiking interest rates.
That kept the pound firm at $1.6562 on the dollar, while the euro was down at a one-year low of 81.65 pence.
Across the pond, the Canadian dollar fell yet further in the wake of the Bank of Canada's warning that it was growing more concerned about low inflation, leaving the door wide open to a cut in interest rates there.
The central bank also took a rhetorical razor to the Canadian dollar saying a weaker currency would be positive for both exports and inflation.
The contrast with the situation in Britain saw the pound climb to its highest on the Canadian currency since mid 2009 at C$1.8483, a rise of 2.3 percent in less than 48 hours.
The U.S. dollar powered ahead to C$1.1140, encouraged in part by expectations that the Federal Reserve will make another $10 billion cut to its monthly bond-buying program at its policy meeting next week.
The dollar could not sustain any gains on the yen, however, and eased back to 104.30, while the euro stayed in a well-worn range at $1.3542.
In commodity markets, the Chinese data got the blame for a general softness in prices.
Gold lost ground after its repeated failure to break above key technical resistance at $1,260 an ounce prompted investors to take profits. Spot gold was off at $1,235.40 per ounce, leaving behind Monday's peak of $1,259.85.
Crude oil eased after an industry report showed a sharp rise in crude stockpiles in the U.S. - the world's biggest oil consumer. U.S. crude oil futures dipped 24 cents to $96.49 a barrel, after jumping more than a dollar overnight. Brent oil for March delivery lost 20 cents to $108.07.
(Editing by Eric Meijer)
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