Bloomberg News

German Stocks Fall for Third Day; BMW, Volkswagen Lead Declines

December 14, 2011

Dec. 14 (Bloomberg) -- German stocks fell for a third day after the U.S. Federal Reserve refrained from taking further action to stimulate the world’s largest economy and concern grew that the European debt crisis is deepening.

Bayerische Motoren Werke AG, the biggest maker of luxury cars, and Volkswagen AG dropped more than 4 percent. TUI AG, the owner of Europe’s largest travel company, advanced 4.4 percent after forecasting “moderate growth” next year.

The benchmark DAX Index slid 99.12, or 1.7 percent, to 5,675.14 at the close of trading in Frankfurt, the lowest level since Nov. 25. The gauge has retreated 18 percent this year as Europe’s sovereign-debt crisis spread to Italy and Spain and growth in the U.S. slowed. The broader HDAX Index fell 1.8 percent today.

“While citing an improvement in the U.S. economy, the Fed suggested that the biggest risk to any recovery was the European debt crisis,” said Michael Hewson, a markets analyst at CMC Markets Ltd. in London. “This slightly more upbeat tone about the U.S. economy removed any likelihood of there being any additional measures to boost the economy in the near term.”

This year’s slump in the DAX has left the gauge trading for 9.5 times estimated profits, a discount of 21 percent to its average price-earnings ratio of 12.1 over the past five years, according to data compiled by Bloomberg.

Fed Statement

The Fed declined to take new action to lower borrowing costs in a statement after European markets closed yesterday. The central bank said the U.S. economy continues to expand even as the global economy slows. The Fed statement repeated a warning at the two previous meetings that “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

The bank said it would continue to exchange $400 billion of short-term debt with long-term securities to lengthen the average maturity of its holdings, a move dubbed Operation Twist. The Fed also did not alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.

The cost of insuring against default on European sovereign bonds approached a record on concern cracks are emerging in last week’s agreement to resolve the debt crisis, according to traders of credit-default swaps.

Italy had to pay the most in 14 years to sell five-year bonds at an auction today. The government sold 3 billion euros ($3.9 billion) of the securities to yield 6.47 percent, the most since May 1997 and up from 6.29 percent at the last auction on Nov. 14.

BMW lost 5.1 percent to 50.25 euros. Volkswagen, Europe’s largest automaker, declined 4.5 percent to 114.95 euros.

Solon SE slumped 46 percent to 50.2 euro cents, the largest decline in eight years, after becoming the first publicly traded solar company from Germany to file for insolvency.

TUI rallied 4.4 percent to 4.06 euros after saying it expects moderate growth in revenue and operating earnings in fiscal 2012.

--Editor: Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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