Global stocks lose steam on weak German growth

By Colleen Barry

Associated Press

Published: Tuesday, Aug. 16 2011 10:05 a.m. MDT

A currency trader watches monitors at the Korea Exchange Bank headquarters in Seoul, South Korea, Tuesday, Aug. 16, 2011. Asian markets opened higher Tuesday as calm continued following last week's volatility.

Ahn Young-joon, Associated Press

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MILAN — After an optimistic start to the trading week, stocks around the world lost their steam Tuesday after subdued German growth figures reinforced fears over the global economy.

Germany reported that growth almost ground to a halt in the second quarter, in another downbeat note for the global economy following similarly disappointing readings from France and the United States. Quarterly growth was only 0.1 percent on lagging consumer spending and construction investment — putting a damper on recovery driven by booming exports that power Europe's biggest economy.

The fall in German growth was the root cause behind the fall in the eurozone's expansion to 0.2 percent during the quarter from 0.8 percent in the previous three-month period.

"It is the really disappointing German GDP reading that is weighing on European markets today," said Giles Watts, head of equities at City Index.

In Europe, Germany's DAX was 0.45 percent lower at 5,994 while the CAC-40 in France fell 0.25 percent to 3,230. Britain's FTSE 100 of leading British shares was up slightly at 0.13 percent at 5,357.

Milan markets, in the first test of €45.5 billion ($64.8 billion) in emergency austerity measures announced last week, closed down 0.87 percent at 15,750.

U.S. data did little to improve sentiment at the Wall Street open, with soft housing figures largely offset by better than expected industrial production data and the news that Fitch Ratings was keeping its triple A rating on U.S. debt. Ten or so days ago, Standard & Poor's downgraded its rating on the U.S., helping to trigger the turmoil in financial markets.

Wall Street opened lower after posting impressive gains Monday on a round of corporate deals. The Dow Jones industrial average was down 0.6 percent to 11.415. The S&P 500 index was down 0.8 percent to 1,195.

The euro also was weighed down by the growth data, trading 0.3 percent lower on the day at $1.439.

Jane Foley, senior currency strategist at Rabobank International, said the German figures had "taken the wind out of the euro's sails."

Europe's single currency has prospered in recent sessions as stocks recovered their poise following dramatic losses. When investors have a higher appetite for risk, assets like shares and the euro garner support.

Also weighing on the single currency Tuesday is unease over a highly anticipated summit between French leader Nicolas Sarkozy and German Chancellor Angela Merkel.

There had been hopes over the weekend that the two would discuss issuing jointly guaranteed European government bonds as a means to end the eurozone's crippling debt crisis.

However, the prospect of so-called eurobonds featuring at the summit appear to have been dashed after two leading German ministers reiterated opposition to them.

Eurobonds would be a major step toward the bloc's economic integration, and are billed by supporters as an overnight solution to the crisis. Italy, Greece, Belgium and Luxembourg are among the nations calling for eurobonds.

"Considering the way Europe has gone about dealing with the sovereign crisis, Germany and the rest of the reluctant euro area countries, like Finland, will likely need a crisis, perhaps threatening the euro itself before bold measures such as a eurobond are considered," said Benjamin Reitzes, an analyst at BMO Capital Markets.

Earlier Tuesday, Asian shares traded higher in the wake of the previous day's advance in Europe and the U.S.

Japan's Nikkei 225 index rose 0.2 percent to close at 9,107.43, while South Korea's Kospi jumped 4.8 percent to 1,879.87 following a public holiday.

However, Hong Kong's Hang Seng fell 0.2 percent to 20,212.08 and mainland Chinese shares snapped a five-session winning streak as investors cashed in on recent gains. The Shanghai Composite Index lost 0.7 percent to 2,608.17, and the Shenzhen Composite Index lost 0.7 percent to 1,166.84.

In the oil markets, prices fell alongside equities. Benchmark oil for September delivery was down $1.84 to $86.04 a barrel in electronic trading on the New York Mercantile Exchange.

Pamela Sampson contributed from Bangkok.

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