Jan. 27 (Bloomberg) -- German stocks declined as better- than-estimated earnings at Siemens AG and an unexpected gain in business confidence failed to ease concerns the global recession will erode corporate profits.

Bayer AG, Germany’s biggest drugmaker, and BASF SE both fell at least 1 percent after JPMorgan Chase & Co. cut its share-price estimates on the stocks. Deutsche Lufthansa AG, Europe’s second-largest airline, and Volkswagen AG gained more than 3 percent as crude oil fell the most in two weeks in New York. Siemens, Europe’s largest engineering company, rose to a two-week high.

The benchmark DAX Index lost 0.1 percent to 4,323.42. DAX futures expiring in March dropped 0.1 percent as of 5:50 p.m. in Frankfurt. The broader HDAX Index was little changed at 2,151.87.

“Today’s news flow was positive but uncertainty is still very high,” Walter Harecker, who helps manage about $13 billion at Constantia Privatbank in Vienna, said in telephone interview. “Investors are looking at guidance rather than earnings and companies are in general rather cautious, which is contributing to nervousness. The volatility will continue.”

The Ifo institute in Munich said its German business climate index based on a survey of 7,000 executives unexpectedly rose for the first time in eight months in December. Economists expected a drop to the lowest level in 26 years, according to the median forecast in a Bloomberg News survey.

Chemical Demand

Bayer lost 2.7 percent to 41.86 euros. JPMorgan cut its price projection on the stock 17 percent to 50 euros. BASF declined 1.1 percent to 22.16 euros. The brokerage slashed its share-price estimate for the world’s largest chemical maker 31 percent to 33 euros.

Declining demand at chemical companies will “dominate earnings trajectory,” analysts including Neil C. Tyler wrote in a note to clients today. “We believe the cumulative effect of falling operating rates will progressively weaken pricing power, and prevent companies from deriving any meaningful margin benefit from collapsing raw material costs.”

Linde AG, Germany’s largest industrial gas maker, fell 3.2 percent to 52.28 euros.

The DAX has tumbled 46 percent since the beginning of last year as credit losses and writedowns topped $1 trillion in the worst financial crisis since the Great Depression and the U.S., Japan and Europe fell into simultaneous recessions.

Siemens increased 2.8 percent to 44.77 euros. First-quarter earnings, referred to as sector profit, increased 20 percent to 2 billion euros ($2.6 billion), exceeding a 1.83 billion-euro median estimate in a Bloomberg News survey.

Profit Goals

The company said 2009 sales will at least equal last year’s total and that it’s sticking to full-year profit goals, boosted by orders from government economic stimulus packages for infrastructure, savings from purchasing improvements, and its planned 16,750 job cuts.

Oil prices dropped as much as 6.4 percent to $42.81 a barrel. Lufthansa advanced 3.2 percent to 9.58 euros. Jet-fuel prices in northwest Europe have tumbled 68 percent from a high reached in July, Bloomberg data show.

Volkswagen gained 2.8 percent to 262.41 euros. Europe’s largest carmaker is seeking an exemption from its hometown’s business taxes for the first quarter because the company may post a loss for the period, the German city’s mayor Rolf Schnellecke said in a telephone interview today.

Separately, Germany’s ruling coalition has reached an agreement on a new automobile tax that will focus on cutting carbon-dioxide emissions while avoiding significant tax increases for large sport-utility vehicles.

The rule will cut the annual levy on Daimler AG’s Smart ForTwo model to 20 euros from the present 67 euros, while an owner of VW’s Audi Q7 Quattro sport utility vehicle will pay 926 euros, unchanged from the current fee, the Finance Ministry said.

Daimler AG, the world’s second-largest maker of luxury cars, gained 3.1 percent to 22.03 euros.

The following stocks also rose or fell in German markets. Symbols are in parentheses.

Loewe AG (LOE GY) climbed 3 percent to 6.80 euros. The television maker partly owned by Sharp Corp. predicted moderate sales growth this year and said 2008 earnings gained 35 percent on lower procurement costs related to a decline in the dollar.

Merck KGaA (MRK GY) fell 2.3 percent to 68.50 euros after WestLB AG lowered its recommendation for the European maker of the Erbitux cancer drug to “add” from “buy.”

Phoenix Solar AG (PS4 GY) surged 11 percent to 29.75 euros. The maker of solar-powered electricity plants said it’s targeting earnings before interest and taxes of about 31 million euros this year on sales of about 520 million euros.

Q-Cells SE (QCE GY) gained 4.3 percent to 19.93 euros. Germany’s largest solar company forecast 2009 sales in the range of 1.75 billion euros to 2.25 billion euros, according to an investor presentation.

Solarworld AG (SWV GY) rose 7.3 percent to 16.27 euros. The country’s third-largest solar company confirmed its earnings and sales guidance for 2008.

Software AG (SOW GY) rallied 15 percent to 45.38 euros, the steepest intraday gain since October. Germany’s second-largest software maker said net income surged 31 percent last year after it entered the Brazilian market and integrated its WebMethods unit.

To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.

Last Updated: January 27, 2009 12:22 EST