By Amanda Cooper

LONDON (Reuters) - Global shares fell on Wednesday ahead of a crucial vote in Washington on the U.S. debt ceiling, while commodities and the came under pressure after data highlighted faltering growth in the world’s second-largest economy.

The MSCI All-World Index of global shares, which is heading for its first monthly decline since February, was down 0.4% in mid-morning trade in Europe, largely due to declines across Asian markets.

U.S. stock index futures and fell by 0.3-0.4%.

Data showed China's manufacturing activity fell more than expected in May, while services growth -- which has been one of the few bright spots in its patchy recovery -- slackened to its slowest pace in four months.

For any investors hoping for a sustained bounce in Chinese growth after the elimination of stringent COVID restrictions late last year, the figures offered more evidence that the economy is losing steam, further dimming the global outlook.

"If the market was hoping for China to come to the rescue, I think, on this occasion, they're mistaken," CMC Markets strategist Michael Hewson said. "COVID has done a lot of structural damage to the Chinese economy."

The yuan dropped to its lowest since last November, when China was under public health restrictions. It was last down 0.5% at 7.124 per dollar, putting in on track for a 2.6% drop this month, following a series of weak readings on anything from industrial profits, to retail sales and loan growth.

The disappointment filtered through to other China-sensitive assets. The Australian dollar hit a near seven-month low of $0.6489 and is down four months in a row, while and sank.

In Europe, equities came under a third day of selling pressure. The regional hit two-month lows, led by declines in China-focussed luxury stocks like LVMH, Burberry and Swatch Group (SIX:).

DOLLAR ON A ROLL

The dollar, which was up 0.5% against a basket of currencies, is set for its largest monthly rise since September, thanks to safe-haven flows stemming from concerns around the gridlock over the U.S. debt ceiling.

The euro tumbled by as much as 0.7% on the day after data showed a rapid cooling in consumer price pressures in both France and Germany - the region's two largest economies.

The data didn't do much to move the needle on interest rate expectations, though. Money markets on Wednesday showed traders expect the European Central Bank to raise rates to a peak of around 3.70% by September, from 3.25% now, showing almost no change from Tuesday's close.

A separate report on Tuesday showed consumer and producer price expectations have dropped sharply, but remain high by historical standards, according to Matt Simpson, a strategist at City Index.

"If prices are expected to stay high, they probably will," he said.

Meanwhile, Treasury yields fell after a deal to suspend the U.S. debt limit and avoid a default cleared a House of Representatives committee overnight. The bill is set for debate on Wednesday, and passage would send it to the Senate where debate could stretch to the weekend.

Treasuries rallied after the initial deal was struck, on the expectation a U.S. default would be averted, but the market remains skittish as once it is authorised to borrow the Treasury is likely to issue lots of debt to replenish its coffers. [US/]

Benchmark 10-year yields, which have dropped by 17 basis points (bps) in the last two days, were last at 3.654%, their lowest since May 19. Two-year yields fell 5 bps to 4.428%.

In commodity markets, copper headed for a second monthly drop after the Chinese data, and was last trading down 0.65% on the day at $8,070 a tonne, while , which has lost nearly 8% this month, was steady at $73.59 a barrel.