EUROPE MARKETS: Euro, German Stocks Fall After Downbeat Sentiment Data

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- German business confidence fell short of expectations Friday, weighing on German stocks as the report underscored worries that growth in Europe's largest economy is losing steam.

Widely watched figures from the Ifo Institute showed its business-climate survey fell to 108.0 in July, marking a third straight monthly decline and missing expectations for 109.4. The reading for June was 109.7.

Germany's business climate has recently been pressured, in part by concerns about local companies with ties to Russia, which has been hit with sanctions related to tensions with Ukraine.

"Geopolitical tensions are taking their toll on the German economy," Ifo President Hans-Werner Sinn said in a statement.

Earlier Friday, the GfK institute said German consumer sentiment reached its highest level since December 2006, but also warned that last week's downing of Malaysia Airlines Flight 17 could weigh on consumer sentiment in coming months.

Market reaction: Germany's DAX 30 index extended its loss to 0.7% at 9,729.98.

The euro (EURUSD) fell to $1.3439 after the IFO report, from $1.3465 ahead of the data. The Stoxx Europe 600 index remained lower by 0.3% to 343.43.

Meanwhile, the U.K.'s FTSE 100 had been higher after government data showed U.K. economic growth expanded in the second quarter to above pre-crisis levels, but index later fell by 0.2%. The pound (GBPUSD) rose to $1.699 after the GDP figures.

Comments: If political tensions cast a chill on German economic activity, third-quarter growth "could slow materially," wrote Boris Schlossberg, managing director of FX strategy at BK Asset Management, "although for now, IFO continues to project that German GDP will rise at 2% in 2014." But the currency markets "are clearly concerned, with EUR/USD trading heavy this week after breaking the key 1.3500 support level," he said.

Analysts at Brown Brothers Harriman noted that the expectations-component of the IFO survey was still falling and at 103.4, it is the lowest since last July. "Recall that earlier this week, the Bundesbank warned in its monthly report that the German economy may have stalled in Q2. Yesterday's flash PMI reading provided a modicum of hope that growth returned in Q3."

Luxury-stock blues: Luxury-goods stocks were hit after LVMH Moët Hennessy Louis Vuitton said first-half profit fell 4%, highlighting the sector's exposure to fluctuations in foreign-exchange rates. LVMH shares dropped 6%, contributing to a 1% decline in France's CAC 40 index . LVMH rival Kering SA lost 4.5% in Paris trade.

Cie. Financière Richemont SA, , whose brands include Cartier and Montblanc, lost 2.3%, and shares of Burberry Group PLC shed 1.8% in London.

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