German Stocks Sink to Four-Month Low as U.S. Manufacturing Slows

German stocks retreated for a fourth day, closing at their lowest level in four months, after a report showed U.S. manufacturing expanded in July at the slowest pace in two years.

Deutsche Bank AG (DBK) and Commerzbank AG (CBK) followed a selloff in European banking shares. Homag Group AG (HG1) sank the most in more than four years after cutting its yearly forecast. Grenkeleasing AG (GLJ) gained 1.9 percent after raising its net income target.

The benchmark DAX Index (DAX) slid 2.9 percent to 6,953.98 at the 5:30 p.m. close in Frankfurt, the lowest level since March. The measure has sunk 7.6 percent from this year’s high on May 2 as investors speculated that Europe’s sovereign-debt crisis will derail the economic recovery and as concern mounted that U.S. politicians will fail to lift the federal government’s debt ceiling by tomorrow’s deadline. The broader HDAX Index slumped 2.7 percent today.

President Barack Obama said yesterday that Republican and Democrat leaders in both the House and the Senate had reached an agreement to raise the debt limit by $2.1 trillion and cut government spending by $2.4 trillion. The House plans to vote on the proposal today and the Senate may follow.

“I am not overly euphoric as we are still facing macroeconomic issues,” said Jens Finkbeiner, who manages about $200 million at F+M Financial GmbH in Frankfurt, commenting on the U.S. agreement.

The Institute for Supply Management’s factory index fell to 50.9 in July from 55.3 in June, the Tempe, Arizona-based group said today. Economists had predicted that the index would drop to 54.5, according to the median forecast in a Bloomberg News survey.

Deutsche Bank, Commerzbank

Deutsche Bank andCommerzbank, Germany’s biggest banks, lost 4 percent to 37 euros and 5.2 percent to 2.52 euros, respectively. Banking shares were among the worst performers in the benchmark Stoxx Europe 600 Index today, losing 2 percent as a group.

EON AG and RWE AG (RWE), which account for more than 8 percent of the DAX Index by weighting, retreated 3.1 percent to 18.63 euros and 2.8 percent to 35.53 euros, respectively. Utility shares were among the worst performers across Europe today, falling 2.5 percent as a group.

Homag Group plummeted 14 percent to 12.70 euros, its largest drop since its initial public offering in July 2007. The builder of machines to make furniture and timber-frame houses cut its forecast for 2011 after its second-quarter results missed its targets.

Grenkeleasing rose 1.9 percent to 42.50 euros, its first gain in four days. The company, which buys and leases computer equipment, raised its full-year forecast for net income to 36 million euros ($51 million) to 38 million euros as profit surged 48 percent to 18.1 million euros in the first half.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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

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