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German Stocks Drop as Divisions Threaten Rescue Deal for Greece

German stocks retreated for the first time this week amid concern that divisions between officials may delay a second rescue plan for Greece and as U.S. economic reports indicated the economic recovery is weakening.

ThyssenKrupp AG and Salzgitter AG fell after Outokumpu Oyj, a Finnish producer of stainless steel, forecast a “significantly negative” operating result in the second quarter. Deutsche bank AG and Commerzbank AG followed European banking shares lower. Draegerwerk AG & Co. slipped 1.7 percent as WestLB AG downgraded the stock.

The DAX Index dropped 1.3 percent to 7,115.08 at the 5:30 p.m. close in Frankfurt. The gauge has fallen 5.5 percent from this year’s high on May 2 as investors speculated that the U.S. economic recovery is slowing and Greece will fail to repay all of its debt. The broader HDAX Index lost 1.2 percent today.

“There’s more room to the downside and the DAX could fall to 6,500 in the next two to three months,” said Heinz-Gerd Sonnenschein, an equity strategist at Deutsche Postbank AG in Bonn. “It’s all a bit foggy at the moment and investors are in a wait-and-see mode.”

An emergency session of finance ministers in Brussels late yesterday failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new Greek aid package with European Central Bank warnings backed by France that the move may constitute the euro area’s first sovereign default.

Consensus Elusive

With consensus elusive before a leaders’ summit planned for late next week, finance ministers agreed to convene again on June 19, a day earlier than planned. Talks may drag on into July, Luxembourg’s Finance Minister Luc Frieden said.

The DAX extended losses as a measure of manufacturing in the New York region unexpectedly declined. The Federal Reserve Bank of New York’s general economic index dropped to minus 7.8 in June, the lowest level since November, from 11.9 in May. The median forecast in a Bloomberg News survey of economists was 12. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.

A separate report showed industrial production in the U.S. rose less than forecast in May. Output at factories, mines and utilities gained 0.1 percent after no change the prior month, according to figures from the Federal Reserve. Economists had projected a 0.2 percent gain, according to the median estimate in a Bloomberg survey.

Steelmakers Slide

ThyssenKrupp AG, Germany’s biggest steelmaker, slid 2.7 percent to 33.91 euros, while Salzgitter, the second-largest, lost 1.6 percent to 50.02 euros. Outokumpu today forecast impairment and restructuring costs of 148 million euros ($212 million) in the quarter.

Separately, Nucor Corp., the largest U.S. steelmaker by market value, said order rates are expected to remain stable and forecast second-quarter profit that was less than analysts projected.

Deutsche Bank and Commerzbank, Germany’s biggest banks, lost 1.2 percent to 39.73 euros and 2.2 percent to 3.03 euros, respectively. Banking shares posted the worst performance among 19 industry groups in the benchmark Stoxx Europe 600 Index today, falling 2 percent.

Draegerwerk dropped 1.7 percent to 72.11 euros, the first decline this week. The maker of medical equipment was downgraded to “reduce” from “add” at WestLB, which cited the impact of a slowing U.S. economic recovery on orders and “more intense competition likely in the anesthesia segment.”

Qiagen NV added 1.2 percent to 13.80 euros, a sixth straight advance for the longest winning streak since December 2009. The Dutch company whose tools are used to predict disease and isolate DNA, plans to buy Ipsogen SA for about 70 million euros ($100 million) to add tests for blood cancers.

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