By Carla Mozee, MarketWatch
LONDON (MarketWatch)--German business confidence fell short of
expectations Friday, weighing on German stocks as the report
underscored worries that growth in Europe's largest economy is
losing steam.
Widely watched figures from the Ifo Institute showed its
business-climate survey fell to 108.0 in July, marking a third
straight monthly decline and missing expectations for 109.4. The
reading for June was 109.7.
Germany's business climate has recently been pressured, in part
by concerns about German companies with ties to Russia, which has
been hit with sanctions related to tensions with Ukraine.
"Geopolitical tensions are taking their toll on the German
economy," said Hans-Werner Sinn, president of the IFO Institute, in
a statement.
Earlier Friday, the GfK institute said German consumer sentiment
reached its highest level since December 2006, but also warned that
last week's downing of Malaysia Airlines Flight 17 could weigh on
consumer sentiment in coming months.
Market reaction: Germany's DAX 30 index extended its loss to
1.5%, closing at 9,644.01.
The euro (EURUSD) fell to $1.3433 after the IFO report, from
$1.3465 ahead of the data. The Stoxx Europe 600 index remained
lower, closing down 0.7% to 341.95.
In London, the FTSE 100 had been higher after government data
showed U.K. economic growth expanded in the second quarter to above
precrisis levels, but the index later fell by 0.4% to 6,791.55. The
pound (GBPUSD) rose to $1.699 after the GDP figures.
Comments: If political tensions cast a chill on German economic
activity, third-quarter growth "could slow materially," wrote Boris
Schlossberg, managing director of FX strategy at BK Asset
Management, "although for now, IFO continues to project that German
GDP will rise at 2% in 2014." But the currency markets "are clearly
concerned, with EUR/USD trading heavy this week after breaking the
key 1.3500 support level," he said.
Analysts at Brown Brothers Harriman noted that the
expectations-component of the IFO survey was still falling and at
103.4, it is the lowest since last July. "Recall that earlier this
week, the Bundesbank warned in its monthly report that the German
economy may have stalled in Q2. Yesterday's flash PMI reading
provided a modicum of hope that growth returned in Q3."
Luxury-stock blues: Luxury-goods stocks were hit after LVMH Moët
Hennessy Louis Vuitton said first-half profit fell 4%, highlighting
the sector's exposure to fluctuations in foreign-exchange
rates.
LVMH shares dropped 6.8%, contributing to a 1.8% decline in
France's CAC 40 index . LVMH rival Kering SA lost 5% in Paris
trade.
Cie. Financière Richemont SA,, whose brands include Cartier and
Montblanc, fell 2.3%, and shares of Burberry Group PLC shed 1.6% in
London.
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