* Global stocks fall on weak profit outlook, bank concerns
* U.S., European debt prices rise on sliding stock markets
* Oil prices slip on worries about slower economic growth
* Euro, yen gain on dollar as risk aversion fears ease (Recasts with U.S. markets, changes dateline; previous LONDON)
By Herbert Lash
NEW YORK, Feb 2 (Reuters) - The euro and yen rose against the dollar on Monday as demand eased for the U.S. currency as a safe haven after a better-than-expected reading on U.S. manufacturing data, which helped some U.S. stocks turn higher.
The tech-rich Nasdaq bucked an initial downward trend among U.S. equities on expectations technology will be a beneficiary of government stimulus spending. Companies continue to lower their outlooks because of the worsening economic environment.
While equity investors took comfort in data showing U.S. factory activity contracted at a slower pace in January, other data pointed to slower economic growth.
U.S. consumers cut spending for a sixth straight month in December and their incomes shrank, For details, see [ID:nN02437301] and U.S. construction spending fell for a third straight month in December.
Oil fell below $41 a barrel at one point as a deepening U.S. recession curbed demand in the world's top energy user.
The Institute for Supply Management said its index of U.S. factory activity rose to 35.6 from a nearly three-decade low of 32.9 in December, its first increase since June, in a report that provided a rare dose of relieving news for the battered American economy.
"We're getting a relief rally out of tech because tech is a big beneficiary of capital spending, particularly from the industrials," said Terry Morris, senior equity manager for National Penn Investors Trust Co in Reading, Pennyslavania.
Before 1 p.m., the Dow Jones industrial average <.DJI> was down 21.50 points, or 0.27 percent, at 7,979.36. The Standard & Poor's 500 Index <.SPX> was up 2.52 points, or 0.31 percent, at 828.40. The Nasdaq Composite Index <.IXIC> was up 16.02 points, or 1.09 percent, at 1,492.44.
Both the Dow and S&P 500 briefly fell 10 percent for the year on Monday after the two U.S. benchmarks racked up their worst January ever. Financials were behind the decline, as they were in Europe, where the leading index ended sharply lower.
Concerns linger over the fate of the ailing financial sector and the kind of government help banks may receive as President Barack Obama's administration tries to free up tight credit markets and resolve the issue of toxic banking assets.
"It comes down to trying to value what the bad assets are worth and it appears that's going to take some time," said Kurt Brunner, a money manager at Swarthmore Group in Philadelphia.
The FTSEurofirst 300 index <.FTEU3> of top European shares ended down 2.4 percent at 777.28 points.
Banks continued to be the weakest sector in Europe. British
bank Barclays
French bank BNP Paribas
"We may have some economic statistics that show a slight improvement but the trend is downwards. We expect the U.S. economy to be down 5-6 percent in thr first quarter, and that's not good news," said Thierry Lacraz, strategist at Pictet in Geneva. We remain relatively cautious on equities, and are not overweight in the market despite valuations that are interesting," he added.
The euro and yen rose against the dollar, which has rallied in recent months on extreme risk aversion amid the global economic slowdown.
Sterling sank against the dollar, hurt by deepening worries over the health of Britain's financial sector and economic outlook.
The euro
U.S. government bond prices pushed higher as the U.S. economic data reinforced the notion the Federal Reserve will hold rates near zero this year.
Euro zone government bond prices rose on worries that a deepening global recession will hammer corporate profits and bolster bids for lower risk fixed-income assets.
The benchmark 10-year U.S. Treasury note
U.S. light sweet crude oil
Gold slipped as investors took profits after a 15 percent gain in January, but deepening concerns about the economy and turbulence in equity markets are expected to trigger potential gains in bouillon, seen as a store of value.
"Gold is currently working as a 'fear indicator,' signaling risk aversion of market participants," said Eugen Weinberg, commodities analyst at Commerzbank in Frankfurt.
Spot gold prices
Japan's Nikkei share average <.N225> fell 1.5 percent, while stocks in Asia-Pacific outside Japan <.MIAPJ0000PUS> were down 1.85 percent, according to an MSCI index. (Reporting by Leah Schnurr, Richard Leong, Vivianne Rodrigues and Emelia Sithole-Matarise, Sitaraman Shankar, David Sheppard and Pratima Desai in London; writing by Herbert Lash, Editing by Chizu Nomiyama)