German Stocks Retreat as Investors Assess U.S. Shutdown

German stocks dropped as the U.S. government shutdown entered a second day and investors weighed its impact on growth in the world’s largest economy.

K+S AG, a producer of crop nutrients, fell 2.1 percent after saying that a planned explosion at a potash mine in Germany killed three miners yesterday. Deutsche Lufthansa AG lost 3.6 percent as Deutsche Bank AG downgraded its rating on the airline. Gerresheimer AG rose 1.8 percent after saying it will adopt a new business structure from Dec. 1 and confirming its earnings and sales forecasts for 2013.

The DAX Index declined 0.7 percent to 8,629.42 at the close of trading in Frankfurt. The equity benchmark added 8 percent in the three months through September, for its biggest quarterly advance in a year, as the Federal Reserve refrained from reducing its monthly bond purchases. The broader HDAX Index fell 0.6 percent today.

“There’s pressure on the markets because of U.S. negotiations, and there will be volatility until they reach a solution,” said Christoph Ohme, who helps oversee the equivalent of $1.28 trillion at Deutsche Asset & Wealth Management in Frankfurt. “It will be a difficult process until Oct. 17. Still, I see the market reaction as a correction, not a major broad sell-off, and much more stable than two years ago.”

The volume of shares changing hands in DAX-listed companies was 19 percent lower than the average of the past 30 days, according to data compiled by Bloomberg.

The U.S. government continued its first partial shutdown in 17 years as lawmakers failed to agree on a budget, placing as many as 800,000 federal employees temporarily out of work. Congress now faces a dispute over raising the $16.7 trillion debt ceiling this month.

Shutdown Effect

A partial shutdown lasting one week would probably shave 0.1 percentage point from economic growth, according to the median estimate of economists in a Bloomberg survey, with the costs accelerating if the closure persists.

The Treasury has said measures to avoid exceeding the borrowing limit will be exhausted on Oct. 17. The U.S. won’t have enough money to pay all of its bills at some point between Oct. 22 and Oct. 31 without action by Congress, according to the Congressional Budget Office.

European Central Bank policy makers kept their benchmark interest rate unchanged at a record low of 0.5 percent, matching all 52 economists’ estimates in a Bloomberg News survey.

In Italy, Prime Minister Enrico Letta won a confidence vote today after Silvio Berlusconi backtracked on a pledge to bring down the five-month old government as his party showed signs of deserting him.

Berlusconi Threat

Berlusconi had repeatedly threatened to bring down the government if Letta’s Democratic Party voted to expel him from the Senate following his definitive conviction for tax fraud in August. A public hearing in a Senate committee on the matter is scheduled for Oct. 4.

K+S fell 2.1 percent to 18.62 euros, extending its decline this year to 47 percent after posting its worst quarter in five years. Three workers died after an intentional underground blast at a mine in Germany’s Thuringia state released a large accumulation of carbon dioxide, according to a spokesman.

Lufthansa lost 3.6 percent to 14.27 euros as Deutsche Bank downgraded the carrier to hold from buy. Air Berlin Plc declined 2.9 percent to 1.70 euros as the brokerage cut its rating to sell from buy. The airlines’ restructuring plans may take longer than expected and demand remains weak, according to a Deutsche Bank note. Both carriers will report September sales next week.

Hochtief Slides

Hochtief AG dropped 7.9 percent to 60.20 euros, the biggest decline since November 2011, after the Sydney Morning Herald reported allegations of corruption at its Australian construction unit, Leighton Holdings Ltd. The newspaper cited internal company files obtained in an investigation by its publisher Fairfax Media Ltd. Hochtief spokesman Christian Gerhardus declined to comment to Bloomberg News on the report.

Gerresheimer rose 1.8 percent to 45.60 euros. The producer of pharmaceutical and health-care equipment said it will divide its operations in three units in the new financial year starting December, from four divisions previously.

MorphoSys AG rallied 7.2 percent to 61.35 euros, extending its rally this year to 109 percent. Partner Novartis AG started a second-phase trial of a treatment for muscle loss and weakness, triggering an undisclosed payment for the German biotechnology company, according to a statement today.

Before it's here, it's on the Bloomberg Terminal.