The eurozone's main stock markets faltered yesterday, with Milan sliding on gloomy news that the Italian economy has now officially entered a recession, but London was buoyed by upbeat corporate earnings.

In early afternoon deals, Milan stocks were down nearly one percent, with Frankfurt not far behind and Paris slightly down.

London rose, with drinks group Diageo rising strongly on a share buyback and solid earnings, while energy giant Royal Dutch Shell stock jumped on soaring annual profits.

Wall Street opened lower, paring yesterday’s Fed-inspired gains. 

In Italy meanwhile, official data showed that the eurozone's third largest economy shrank 0.2 per cent in the final quarter of last year after a 0.1 per cent drop in the third quarter.

The technical definition of a recession is economic contraction for two quarters in a row.

"The risk of recession in the eurozone is something that has been widely discussed for weeks now but the news that Italy has fallen into technical recession still comes as a blow to the region," Oanda analyst Craig Erlam told AFP.

"Others could also follow with Germany having posted negative growth in the third quarter. This is naturally weighing on sentiment," Erlam warned.

Data also showed that expansion in the overall eurozone economy slowed sharply to 1.8 per cent in 2018 after 2.4 per cent in 2017, as slumping German exports and Brexit worries sapped momentum.

However, growth hit an anaemic 0.2 percent in the October to December period, the same as the previous quarter, the Eurostat agency added.

Italy's recession places intense pressure on the nation's populist government, headed by Prime Minister Giuseppe Conte who took power in June on the back of big-spending electoral promises.

"This (recession) should not really be a surprise given the direction of travel of recent data," CMC Markets analyst Michael Hewson told AFP.

"The problem EU policymakers have is that it looks as if it could well me much more serious than originally thought. If that is the case it makes it much more likely that the Italian government will feel compelled to breach its deficit targets even further.

"The deterioration in the data thus makes a renewed conflict with the EU Commission much more likely," Hewson added.

Elsewhere Thursday, the dollar extended losses after the Federal Reserve signalled it would slow down its pace of interest rate hikes, providing some much-needed respite to investors fretting over the cost of borrowing.

Dealers are also keeping an eye on top-level talks between China and the US aimed at resolving their long-running trade war, which kicked off on Wednesday.

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