RPT-INSIGHT-U.S. Debt Relief Replaced with Recession Fear

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* Euro area debt crisis deepens; Italy, Spain in focus

* Global manufacturing sector close to stalling, orders fall

* One in three chance of U.S. recession-Lawrence Summers

* Pressure on Fed to signal extended support for economy

* Analysts cut earnings forecasts

By Neil Fullick

SINGAPORE, Aug 3 (Reuters) - In a matter of days, investor relief that the United States avoided default has been replaced by fears Europe's debt crisis is deepening and the world's biggest economy may be slipping back into recession.

Former U.S. Treasury Secretary Lawrence Summers said in a Reuters column there is a one in three chance of a U.S. recession. According to number crunching by Goldman Sachs, history suggests the economy is perilously close to tipping over the edge.

Signs are little better elsewhere. Italy and Spain are edging closer to the euro area debt danger zone, China's economy is slowing and Japan is mired in recession after the March earthquake.

The gloom is hitting the corporate world as analysts cut earnings forecasts globally, especially in export-led economies, and big banks have announced tens of thousands of job cuts.

"The odds of the economy going back into recession are at least one in three if nothing new is done to raise demand and spur growth," Summers said of the United States in his column.

"If these judgements are close to correct, relief will soon give way to alarm about the United States's economic and fiscal future."

The alarm bells may already be ringing. Most worryingly for financial markets, the U.S. administration's commitment to fiscal spending cuts could make any U.S. downturn worse.

"The slide in U.S. growth expectations clearly comes with very poor timing," said Commerzbank strategist Rainer Guntermann.

The bellwether S&P 500 index dropped more than 2.5 percent on Tuesday to wipe out 2011 gains after data showed U.S. consumer spending fell in June for the first time in nearly two years.

The figures underlined the frail state of the U.S. economy, which grew at less than a 1 percent annualised rate in the first half of 2011 in what Deutsche Bank describes as a growth recession, not recovery.

Worryingly for investors, the S&P index crashed through its 200-day moving average, pointing to further weakness ahead.

"I think the conditions have completely changed this week," said Koichi Ono, senior strategist at Daiwa Securities Capital Markets in Tokyo. "Until last week, people have been saying the U.S. debt ceiling was the problem. Now they talk about worries about the health of the economy."

Asian shares followed suit on Wednesday, falling more than 2 percent. Worried investors returned to the safe havens they used during the U.S. debt talks, pushing gold to a fresh record high and keeping the Swiss franc close to a record high against the dollar.

Financial market pressure increased on Italy and Spain, pushing their borrowing costs to 14-year highs and sparking emergency talks among EU policymakers.

The economies of Spain and Italy are much bigger than Ireland, Portugal and Greece that have been bailed out so far in the euro area debt crisis. The rise in yields is the latest sign investors feel policymakers have not done enough to resolve the debt crisis.

"The fear of the market is that the world is going into recession ... and in the euro zone the peripheral markets are the ones that will suffer most," said Alessandro Giansanti, a strategist at ING Amsterdam.

Views on the economic outlook were rapidly being revised, with JPMorgan cutting its forecast on 2012 U.S. growth to 1 percent and markets reflecting expectations of more than 80 basis points of rate cuts in commodity exporter Australia -- 60 basis points more than a day ago.

If the U.S. unemployment rate keeps rising, it would be a strong warning signal that the U.S. economy is close to another recession, Goldman Sachs says.

Its examination of unemployment figures dating back to 1948 shows there is a 76 percent chance the U.S. economy is either in recession or will be within six months when the jobless rate rises by a little over three-tenths of a percentage point over a three-month period.

If data on Friday shows a jobless rate of 9.3 percent for July, and it stays at that level in August, those conditions will have been met.

Friday's report is expected to show the unemployment rate held steady in July at 9.2 percent.

Carmakers such as Chrysler and General Motors Co are feeling the impact of the weak consumer spending. The U.S. market is "tougher than a cheap steak," said Chrysler's head of U.S. sales, Reid Bigland.

Washington's agreement to cut future spending leaves the administration with no room to loosen its fiscal belt to support the stumbling economy, especially with the threat of a ratings downgrade.

That puts more pressure on the Federal Reserve, which meets next Tuesday to review policy, to strengthen its commitment to rock-bottom interest rates or even consider a third round of quantitative easing.

"It's too soon to go to something like full scale QE3, but it's not too soon to signal concern," said John Richards, head of strategy at RBS Americas.

Although America dominates the world economy, there are signs of a slowdown globally.

The world's manufacturing sector came close to stalling in July, expanding at its shallowest pace in two years. New orders fell for the first time since major economies were recovering from the global financial crisis, a report by JP Morgan showed.

A purchasing managers' index from HSBC showed China's factory sector shrank in July, although a government measure showed it maintained weak growth.

Many economists say China's slowdown this year is modest and not a sign of an impending slump. But some say Beijing is treading a fine line between fostering growth and fighting inflation as its tightening campaign runs into its 10th month.

Sensitive to the ups and downs of the global economic cycle, banks have announced close to 50,000 job cuts, starting now and continuing in coming years. HSBC and Lloyds Banking Group have announced the biggest cuts.

Analysts are cutting earnings forecasts globally, with those in export-dependent economies such as Taiwan, Singapore and Australia bearing the biggest cuts.

Out of 22,000 stocks tracked over the past 30 days, analysts have downgraded their earnings estimates by 0.5 percent on a mean basis.

Nearly 75 percent of changes in estimates in Taiwan have been downgrades. In Australia, 65 percent were downgrades and in Switzerland it was nearly 80 percent. (Editing by Dean Yates)