German jitters hit European shares, euro

Thu Jan 31, 2013 5:43am EST
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By Marc Jones

LONDON (Reuters) - European shares fell for a second straight day and the euro halted its recent rally, as weak German retail sales and poor earnings at its biggest bank added to investors' nerves after a shock fourth quarter contraction in the U.S. economy.

Data on Wednesday showed U.S. GDP slipped back 0.1 percent, though the country's central bank, the Federal Reserve, indicated the pullback was likely to be brief as it repeated its pledge to continue providing support.

European shares, which have surged 3.7 percent this month, took their biggest daily hit of the year on Wednesday, and a plunge in German retail sales, stagnant French consumer spending and a huge quarterly loss at Deutsche Bank dashed hopes of a quick rebound.

The mood blackened through the morning, leaving London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI down 0.3 to 0.6 percent by 5:15 a.m. ET. The MSCI world share index .MIWD00000PUS was down 0.1 percent despite shares in Asia posting modest gains. .L.EU.N

"Perhaps the German retail sales have contributed a little bit, but we knew that Q4 was weak, so I would it attribute it more to earnings news," said Chris Scicluna, an economist at Daiwa Capital Markets.

"The Deutsche Bank loss does look to be on the sizable side. There has clearly been some mismatch between financial markets and the real economy so that does lend itself to a bit of a pullback."

In the currency market, the German jitters also put the euro under pressure and halted its recent 4 percent rally.

It had started to show signs of stabilization by mid-morning but remained well short of Wednesday's 14-month high of $1.3588 at $1.3560. The Federal Reserve's promise of continued support was widely expected to mitigate the fall, however, by keeping downward pressure on the dollar. <FRX/>   Continued...

People look at a stock index board outside a brokerage in Tokyo January 30, 2013. REUTERS/Toru Hanai