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German Stocks Drop as Economy Contracts; Metro, Douglas Decline

Jan. 11 (Bloomberg) -- German stocks dropped, after yesterday’s biggest rally in a week, as a report showed that Europe’s largest economy contracted in the final quarter of 2011, indicating it may be headed for a recession.

Metro AG, the nation’s largest retailer, slid after UBS AG advised selling the shares. Douglas Holding AG tumbled 9.8 percent after the retailer said earnings this year will decline. Deutsche Bank AG and Commerzbank AG advanced.

The benchmark DAX Index dropped 0.2 percent to 6,152.34 at the close in Frankfurt. The gauge earlier gained as much as 0.3 percent as Germany received bids for more than twice the debt it had planned to sell at an auction. The DAX retreated 15 percent last year as euro-area leaders struggled to contain the region’s debt crisis. The broader HDAX Index was little changed today.

“Certainly from a clients’ perspective, European markets are a bit overbought, especially from the point of the fundamentals of the debt crisis,” said Will Hedden, a sales trader at IG Index in London. “We were expecting overall European Union growth figures not to be great, but if Germany itself will struggle, what’s left for the others?”

Stocks slipped after a report showed that the debt crisis caused the economy to contract 0.25 percent in the fourth quarter from the third. Growth slowed to 3 percent in 2011, the Federal Statistics Office in Wiesbaden said in an unofficial estimate.

Economists including Christian Schulz at Berenberg Bank predict that gross domestic product will contract again in the current quarter. A recession is defined as two consecutive quarters of declining GDP.

German Debt Sale

Germany received bids for 8.97 billion euros ($11.4 billion) of five-year notes at an auction today, more than double its sale target of 4 billion euros, the Bundesbank said. It sold the 0.75 percent notes maturing in February 2017 at an average yield of 0.90 percent.

David Riley, head of the sovereign-debt unit at Fitch Ratings, today said the European Central Bank should increase its purchases of government bonds to ease pressure on yields.

“We need to have a credible buyer put in place and we don’t have that at the moment,” which is “why we have a number of sovereigns under review,” Riley said at an event in Frankfurt today. “The ECB needs to be more actively engaged, but it can’t save the euro on its own.”

Metro, Douglas Fall

Metro retreated 3.3 percent to 28.36 euros. The stock was cut to “sell” from “neutral” at UBS. Analysts Benjamin Peters and Mike Tattersall wrote in a report that the shares will probably “come under increasing pressure from earnings downgrades.”

Douglas Holding tumbled 9.8 percent to 25.39 euros, its biggest decline since June 2001. Europe’s largest retailer of makeup and perfumes said earnings this year will drop as its Thalia book shop division struggles with consumers’ shift to buying literature online.

Deutsche Bank, the nation’s biggest lender, rose 1.7 percent to 27.94 euros. Commerzbank, Germany’s second largest, surged 5.1 percent to 1.3 euros. UniCredit SpA, Italy’s biggest bank, gained 5.5 percent as its shares were upgraded by Sanford C. Bernstein & Co. and WestLB AG. The bank plans to raise 7.5 billion euros in a rights issue.

Hochtief AG advanced 3.4 percent to 46.88 euros, gaining for a second day. The construction company will form a venture with its owner, Actividades de Construccion & Servicios SA, to build power lines, allowing it to benefit from the change in energy policy in Germany, the Financial Times Deutschland said, citing a Hochtief spokesman it didn’t name.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.

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

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