German Stocks Rise as Carmaker Rally Offsets Confidence

German stocks advanced, rebounding from the biggest three-day drop since November, as a rally in carmakers offset a worse-than-expected decline in business confidence in July and lower-than-forecast U.S. new home sales.

Daimler AG (DAI) rose 4.1 percent as it reported increased sales and stuck to its goal of keeping earnings steady. Volkswagen AG (VOW), the world’s second-largest carmaker, added 1.3 percent. Deutsche Bank AG (DBK) slumped 4.1 percent as second-quarter profit missed analysts’ estimates.

The DAX Index (DAX) gained 0.3 percent to 6,406.52 at the close in Frankfurt, after earlier rising as much as 1.3 percent. The measure has increased 7.3 percent from its 2012 low on June 5 as euro-area leaders eased repayment terms for Spanish lenders and central banks took measures to support growth. The broader HDAX Index also added 0.3 percent today.

“Technically, today’s rise is just a firewall as the index corrects upwards but the bad news just keeps on coming,” said Duarte Caldas, a market strategist at IG Markets in Lisbon. “I do not expect a reversion of the negative trend in equities markets.”

German business confidence fell for a third straight month in July to the lowest in more than two years as the worsening sovereign debt crisis damped the outlook for economic growth and company earnings.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 103.3 from 105.2 in June. That’s the lowest reading since March 2010. Economists predicted a decline to 104.5, according to the median of 35 forecasts in a Bloomberg News survey.

Home Sales

Demand for new U.S. homes unexpectedly dropped in June from a two-year high, indicating the housing recovery will be uneven. Purchases decreased to a 350,000 annual rate, down 8.4 percent from the prior month and the weakest since January, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 74 economists was 372,000.

Greek Prime Minister Antonis Samaras will meet with representatives of the European Commission, the European Central Bank and the International Monetary Fund -- the so-called troika -- on July 27, amid concern the country will fail to abide by the commitments needed to obtain continued financial aid.

Spain’s 10-year bond yields surged to a euro-area record of 7.64 percent yesterday, prompting policy makers to deny an international bailout was being prepared for the country.

China’s slowing economy faces significant downside risks and relies too much on investment, the IMF said in an annual review. The Washington-based lender repeated an assessment that the yuan is “moderately” undervalued, and urged leaders to increase consumption and channel citizens’ savings away from housing.

Carmakers Gain

Daimler rose 4.1 percent to 37.62 euros. The world’s third- largest maker of luxury vehicles said sales in the second- quarter rose 10 percent to 28.9 billion euros ($35 billion), even as profit declined 13 percent as spending to expand the lineup of Mercedes-Benz compact cars offset higher deliveries.

Daimler plans to raise vehicle deliveries in 2012 and match last year’s operating profit from ongoing business of 9 billion euros. The company also reiterated a goal of boosting the operating margin at the Mercedes-Benz Cars division to 10 percent of sales in 2013.

Volkswagen, the world’s second-largest carmaker, jumped 1.3 percent to 133.65 euros. Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, climbed 1.3 percent to 55.89 euros.

A gauge of auto companies was the best performer of the 19 industry groups on the Euro Stoxx 600 Index.

Deutsche Bank slid 4.1 percent to 22.51 euros. Germany’s biggest bank said shortly before the close of trading yesterday that it will reduce risk to meet a 2013 capital-ratio goal after second-quarter profit missed analysts’ estimates on expenses tied to a weaker euro.

Henkel AG & Co KGaA (HEN3), a manufacturer of industrial, commercial and consumer chemical products, fell 0.9 percent to 45.94 euros.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.