* ECB's Nowotny fuels QE expectations with stark warning
* Oil price hits five-year low as dollar strengthens
* Wall Street expected to open down
* Italian bond yields rise after rating downgrade
* China, Japan data add to global growth worries
By John Geddie
LONDON, Dec 8 (Reuters) - European stocks and the euro felt the effects on Monday of a stark warning about the currency bloc's economic prospects, keeping pressure on rock-bottom oil prices following weak data from Asia.
ECB policymaker Ewald Nowotny's warning of a "massive weakening" of the economy followed a rating downgrade in the bloc's third largest economy Italy, buoying bond markets as investors positioned for a fresh round of central bank stimulus.
Europe's index of top shares, the FTSEurofirst, dipped 0.6 percent, as weakening Chinese trade and data showing Japan's recession to be deeper than initially expected fed global growth fears.
Wall Street was set to open down around 0.3 percent.
But the dollar was robust, extending gains after Friday's strong U.S. labour data to weigh on oil prices already crushed by predictions that oversupply would keep building until next year. Brent crude fell to a five-year low.
Italian government bond markets suffered, with yields shooting higher after S&P downgraded the country's credit rating to just one notch above junk on Friday, underscoring the limited progress made under Prime Minister Matteo Renzi's economic reforms.
But all other euro zone borrowing costs fell, with benchmark German yields hitting a day's low after Nowotny said the bloc's tepid recovery had pushed the European Central Bank to look more closely at a sovereign bond quantitative easing programme.
"Nowotny's comments have just reinforced the market's view that the ECB is inching towards outright QE, we think probably in January," said Lee Hardman, a strategist with Bank of Tokyo-Mitsubishi UFJ in London.
The gathering strength of the dollar, against which the euro fell 0.2 percent to a 2-1/2-year low, also weighed heavily on emerging markets on Monday.
The rouble one of the headline losers, giving up 2 percent as it fell back towards record lows hit last week.
Symptomatic of problems affecting many developing markets, there are worries that Russia will jack up interest rates to as much as 12 percent this week in a bid to fend off a full-blown financial crisis.
Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan closed down 0.25 percent. Tokyo's Nikkei was up 0.1 percent with the downward revision to Japan's GDP neutralising much of the positive impact from a weaker yen. South Korea's Kospi lost 0.2 percent while Singaporean and Malaysian shares also dipped.
The Shanghai composite index gained 2.9 percent after the downbeat Chinese data added to hopes that China will implement more stimulus to shore up its economy.
Dariusz Kowalczyk, economist at Credit Agricole in Hong Kong, noted that the year-on-year drop in China's imports was the biggest since the Lehman crisis, barring the volatile Lunar New Year-related period.
"This is partly a reflection of lower commodity prices and base effects, but ...we have to assume that poor domestic demand has played a part. This means that pressure will rise on the government to do more to stimulate growth," he said.
The Australian and the New Zealand dollars , both sensitive to the economic fortunes of China, touched new 4-1/2 year and 2-1/2 year lows, respectively.
The disappointing Chinese and Japanese data contrasted sharply with Friday's U.S. non-farm payrolls that showed employment in November surged by 321,000, easily topping forecasts for 230,000 new jobs. (Additional reporting by Patrick Graham in London, Blaise Robinson in Paris and the China economics team; Editing by Toby Chopra and John Stonestreet)