08/16/2011 09:24 EDT | Updated 10/16/2011 05:12 EDT

German Economic Slowdown Reignites Fear On Stock Markets


MILAN - After an optimistic start to the trading week, global stock markets 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 per cent 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 per cent during the quarter from 0.8 per cent 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 2 per cent lower at 5,904 while the CAC-40 in France fell 1.4 per cent to 3,195. Britain's FTSE 100 of leading British shares was down 0.8 per cent at 5,305.

Milan markets, in the first test of €45.5 billion ($64.8 billion) in emergency austerity measures announced last week, was down 2.1 per cent at 15,557.

The euro was also weighed down by the growth data, trading 0.3 per cent lower on the day at $1.4397.

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.

Wall Street was also headed for a lower opening after posting impressive gains Monday on a round of corporate deals — Dow futures were down 0.8 per cent to 11,312 while S&P 500 futures fell 1.2 per cent to 1,184.

The main point of interest later will be U.S. industrial production figures as well as another report into the state of the U.S. housing market.

Earlier, 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 per cent to close at 9,107.43, while South Korea's Kospi jumped 4.8 per cent to 1,879.87 following a public holiday.

However, Hong Kong's Hang Seng fell 0.2 per cent 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 per cent to 2,608.17 and the Shenzhen Composite Index lost 0.7 per cent to 1,166.84.

In the oil markets, prices fell alongside equities. Benchmark oil for September delivery was down $1.17 to $86.71 a barrel in electronic trading on the New York Mercantile Exchange.