German Stocks Drop Before Spanish Banks Stress Tests

German stocks declined, their biggest weekly drop since June, as investors awaited the results of stress tests of Spain’s banks.

HeidelbergCement AG (HEI) fell 2.2 percent after the stock was downgraded by CA Cheuvreux. Deutsche Lufthansa AG (LHA) dropped 1.7 percent after the airline’s chief executive officer said its cost-cutting program will fail to improve earnings this year. ThyssenKrupp AG (TKA) rose 0.8 percent after selling its tailored blanks unit for an undisclosed price.

The DAX Index (DAX) lost 1 percent to 7,216.15 at the close in Frankfurt, having earlier climbed as much as 0.7 percent. The equity benchmark retreated 3.2 percent this week, its biggest retreat since the beginning of June. The gauge has still rallied 12 percent this quarter as the European Central Bank and the Federal Reserve announced plans to buy bonds. The broader HDAX Index fell 0.9 percent today.

“Most European markets have reached their highs and definitely need some good news in order to keep their upside momentum,” said Theodore Krintas, who helps manage 80 million euros ($103 million) as the managing director of Attica Wealth Management in Athens. Markets are now looking forward to the next European summit on Oct. 18, he said.

Spanish 10-year government bonds erased their decline on speculation the nation will request a bailout, enabling the ECB to buy its debt on the secondary market.

Stress Tests

Spain will publish the results of stress tests on 14 banking groups at 6 p.m. in Madrid today. The tests will help reveal the damage caused to banks’ balance sheets by the country’s real estate crash and are a condition for the 100 billion-euro bank bailout agreed in July.

The government yesterday approved a new tax on lottery winnings and cut ministries’ spending to shrink the budget deficit. The government set a target of 4.5 percent of gross domestic product for the deficit in 2013, compared with 6.3 percent for this year.

A report today showed that German retail sales increased 0.3 percent in August, the Federal Statistics Office in Wiesbaden said today. Economists had forecast a gain of 0.2 percent, according to the median of eight estimates in a Bloomberg News survey.

HeidelbergCement, Lufthansa

HeidelbergCement, the world’s third-biggest cement maker, fell 2.2 percent to 40.77 euros. The stock was cut to underperform from outperform at Cheuvreux, meaning that investors should sell the shares.

Deutsche Lufthansa lost 1.7 percent to 10.55 euros. The airline’s CEO, Christoph Franz, said that fuel costs and the faltering economy will stop the savings plan from leading to an increase in earnings in 2012.

Solarworld AG (SWV) plunged 6.1 percent to 1.53 euros. The World Trade Organization will decide whether U.S. anti-subsidy duties affecting $7.3 billion of Chinese products such as solar panels, thermal paper, wind towers and steel wire violate global commerce rules.

ThyssenKrupp advanced 0.8 percent to 16.54 euros, after earlier rising as much as 3.9 percent. Germany’s largest steelmaker sold the division, which supplies body systems for cars, to Wuhan Iron & Steel Co.

Krones AG (KRN), which makes machines for the bottling and packaging industry, added 2.6 percent to 41.65 euros. Berenberg Bank raised its recommendation on the stock to buy from hold.

To contact the reporter on this story: Tom Stoukas in Toronto at astoukas@bloomberg.net

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

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