Global Stocks Drop Over Germany’s Weak Growth

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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 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 2 percent lower at 5,904 while the CAC-40 in France fell 1.4 percent to 3,195. Britain’s FTSE 100 of leading British shares was down 0.8 percent at 5,305.

Milan markets, in the first test of euro45.5 billion ($64.8 billion) in emergency austerity measures announced last week, was down 2.1 percent at 15,557.

The euro was also weighed down by the growth data, trading 0.3 percent 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.

Associated Press reported that 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 percent to 11,312 while S&P 500 futures fell 1.2 percent to 1,184.