Weak German factory data sends shares, euro lower

Tue Jul 24, 2012 4:39am EDT
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By Richard Hubbard

LONDON (Reuters) - European shares reversed course and fell on Tuesday after weak German factory data overshadowed signs of an improvement in China and sent the euro sliding towards two-year lows.

Germany's manufacturing sector contracted at its fastest pace in three years in July, suggesting Europe's largest economy may shrink in the third quarter as the country feels the effects of the region's debt crisis.

The Markit PMI index tracking the manufacturing sector slid to 43.3 from 45.0 last month, below the consensus forecast in a Reuters poll of 45.3 and well under the 50 mark that separates growth from contraction.

"The German manufacturing sector has been one of the key elements of the euro zone recovery and to see it contracting at this rate is really quite worrying," said Chris Williamson, chief economist at the data compiler Markit.

The euro fell to around $1.2104 after the data, just above a 25-month low of $1.2067 hit on Monday when concerns about Spain sparked a broad sell-off in financial markets.

The FTSEurofirst 300 index .FTEU3 of top European shares reversed early gains to be down 0.2 percent at 1,022.26 points, after it fell 2.4 percent to a three-week low in the previous session.

Spanish five-year government bond yields rose above 10-year yields for the first time since June 2001 on Tuesday, in a sign that markets think the risk of a big credit event has increased.

Five-year yields on Spanish bonds were up 2 basis points at 7.45 percent, while 10-year yields were 6 bps lower at 7.436 percent.   Continued...

Traders work on the floor of the New York Stock Exchange, July 2, 2012. REUTERS/Brendan McDermid