GLOBAL MARKETS-Shares, euro hit as European concerns grow

LONDON (Reuters): European shares and the euro fell as investors sought safety in German government bonds on Friday and a two-notch downgrade of Spain's credit rating ahead of a key Italian bond auction added to worries of slowing growth across the region.

Meanwhile widely expected policy easing measures by the Bank of Japan strengthened the dollar against the yen, but failed to lift Tokyo stocks or inspire confidence among investors.

European shares were down 0.6 percent at 1,037.99 points after three straight days of gains after the move by Standard & Poor's and fresh data showing Spain's jobless rate rising.

"We're expecting another strong wave in this euro zone debt crisis," Carmignac Gestion's Global Manager Frederic Leroux said. "The divergence between German policymakers and the rest of the euro zone is too big for a solution to emerge right now."

The front month German bond futures contract hit a record high of 141.38, up 46 ticks et at the start of the week. Ten-year German bond yields fell three basis points to about 1.65 percent.

The riskier sovereign debt of Spain and Italy moved in the opposite direction with 10-year Italian bond yields up 13 basis points to 5.77 percent and Spain's equivalent debt up 17 basis points to 6.02 percent.

Italy's borrowing costs are expected rise further when the government auctions up to 6.25 billion euros in fixed-rate paper later in the day.

The euro was down 0.35 percent at $1.3162, after it had climbed to a three-week peak near $1.3264 on Thursday.

The dollar measured against a basket of key currencies inched up 0.3 percent helped by the Bank of Japan's decision to increase bond buying by 10 trillion yen ($124 billion).