GLOBAL MARKETS-Slow German growth hits stocks, euro

Tue Aug 16, 2011 12:19pm BST

* Weak German Q2 data hits stocks

* Wall Street set for losses

* Market focus on Merkel/Sarkozy meeting

* Euro weaker against Swiss franc, dollar

By Jeremy Gaunt, European Investment Correspondent

LONDON, Aug 16 (Reuters) - Stagnant growth in Europe's powerhouse Germany knocked stocks lower on Tuesday and hit the euro, fuelling investor fears that the global economy is slowing more than expected.

Wall Street also looked set for losses at the open.

The German data sharpened market focus on Tuesday's meeting in Paris between French President Nicolas Sarkozy and German Chancellor Angela Merkel, with investors looking for any signs of new measures to contain the spreading euro zone debt crisis.

Germany's gross domestic product expanded just 0.1 percent in April-June from the previous quarter, missing forecasts for 0.5 percent and knocking regional growth figures below expectations too.

"The global slowdown is gradually reaching Germany," said Andreas Scheuerle, economist at Dekabank.

The data showed Germany grew more slowly than battered, debt-ridden Spain, which expanded by 0.2 percent.

Germany's slowdown sent European stocks lower, dragging world equities with them, and later figures showing the euro zone as a whole grew a slower than expected 0.2 percent did nothing to improve sentiment.

The FTSEurofirst 300 index was down 1.4 percent and MSCI's all-country world stock index lost half a percent.

Stocks had been rebounding somewhat from a battering that last week took the MSCI index down as much as 20 percent from a three-year high in May.

The U.S. S&P 500 index gained 2.18 percent on Monday. Japan's Nikkei closed up 0.23 percent on Tuesday.

EURO ANGST

The euro was down, extending losses after the German data. It fell 1 percent against the Swiss franc at 1.1219 francs and half a percent against the dollar at $1.4366.

The franc has been a key safe haven for investors during recent market turmoil.

Gold , the other major risk-off choice and one of the best performing assets this year, was up around 0.6 percent at $1,775 an ounce.

German government bond prices firmed after the growth data.

Investors were meanwhile hoping the Franco-German meeting later in the day would come up with ways to improve euro zone governance.

Talk of common euro zone bonds -- increasingly seen as a powerful tool against the region's debt hurdles -- in some of the German media in recent days has lifted hopes, but both countries said euro bonds were not on Tuesday's agenda. (Additional reporting by Marius Zaharia; Editing by John Stonestreet and Ruth Pitchford)