US factories saw their biggest one-month drop in orders last month since the 9/11 terrorist attacks as the effects from Europe's sovereign debt crisis rippled across the Atlantic.

Amid growing evidence that the battle to save the euro is now having a global impact, a key monthly snapshot of business in America showed manufacturing sliding into recession territory for the first time in three years.

Shares fell on Wall Street after traders were taken aback by a gloomy report from the Institute for Supply Management in the US, which followed downbeat news earlier in the day from China and the UK as well as the 17-nation eurozone.

Oil prices also fell back sharply, losing almost $2 a barrel amid concerns that weaker growth across the world economy would hit demand for energy.

Analysts were particularly concerned by the sharp drop in orders for US factories last month, the main factor behind a drop in the ISM's purchasing managers' index below the 50 level that separates expansion from contraction. The ISM said the fall - which puts pressure on the Federal Reserve to take fresh steps to boost growth - from 53.5 to 49.7 was the first since the US was last in recession in 2009.

With weak order books pointing to a protracted slowdown in manufacturing over the coming months, the ISM will cause concern in the White House given the importance of the economy in the close presidential election race looming between president Barack Obama and his Republican challenger Mitt Romney.

"The fall in June's ISM manufacturing index to below 50 is the surest sign yet that the US is catching the slowdown already underway in Europe and China", said Paul Dales, US economist at Capital Economics.

Dales said it was unlikely that the entire US economy would return to recession as a result of the slowdown in manufacturing, but said the economy's expansion in the second quarter of 2012 was likely to be consistent with an annual growth rate of less than 1%. Firms that responded to the ISM survey cited "uncertainties" in both China and Europe for the problems they were having securing new business.

Manufacturers are now battling against the most challenging business climate since the world economy was starting to emerge from the deep slump in the winter of 2008-09 triggered by the collapse of Lehman Brothers. With the survey for China showing industry in the world's second biggest economy slowing further, the global manufacturing PMI produced by JP Morgan and Markit fell to a three-year low of 48.9 last month.

Only two countries in the eurozone - Austria and Ireland - reported an expansion of their manufacturing sectors last month as the PMI for the single currency area remained at its three-year low of 45.1. Germany, a heavily export-dependent economy, posted a manufacturing PMI of 45.0 after being hard hit by sluggish demand from China, the US and the rest of the eurozone.

Europe's bourses were still buoyed by the outcome of last week's Brussels summit in which Germany reluctantly agreed to channel financial help to ailing Spanish banks, and shrugged off the PMI surveys and news of a fresh rise in unemployment. Shares rose in Frankfurt, Paris, Milan and Madrid.

The jobless rate for the eurozone climbed to 11.1% in May from 11% in April, the highest level since the creation of the euro. Youth unemployment rose to 22.6% in May, with 52.1% of the under 25s in both Greece and Spain without work.

Meanwhile, Britain's manufacturing sector remained in the doldrums last month as the crisis in the eurozone took its toll of factory order books. The latest industry survey from from CIPS/Markit showed the pace of decline eased in June after a sharp decline in May, but that the sector was still in recession.

June's result was an improvement on the three-year low of 45.0 recorded in May and not as bad as City economists had been expecting, but dealers are now braced for a fresh dose of money creation from the Bank of England under its quantitative easing programme later this week. Threadneedle Street is expected to announce that it will buy at least £50bn of government gilts over the coming months.