* German GDP drop worst since 2009, France also contracts
* Euro, European shares fall to three-week lows
* German bonds find support, oil falls limited by Iran
* Wall Street expected to open lower
By Marc Jones
LONDON, Feb 14 The euro and shares fell sharply
on Thursday after data showed the euro zone's two biggest
economies shrank even more than expected late last year,
throwing a first quarter regional recovery into doubt.
The German economy contracted 0.6 percent in the final
quarter of 2012, marking its worst performance since the global
financial crisis was raging in 2009. Exports, normally the motor
of its economy, did most of the damage.
Overall the euro zone's 17-country economy shrank 0.6
percent, with France's 0.3 percent fall slightly worse than
Germany is expected to rebound but the figures suggest the
bloc as a whole could remain in recession in the first quarter
of this year, despite a recent jump in market sentiment as fears
that the currency bloc could fall apart faded.
"These are horrible numbers. It's a widespread contraction,
which does not match this positive picture of stabilisation and
positive contagion," said Carsten Brzeski, an economist at ING.
The data pushed the euro down 0.9 percent to $1.3324,
its lowest in three weeks. European shares likewise fell, with
Frankfurt and Milan losing more than 1
percent. Paris and London also suffered heavy
drops, and the FTSEurofirst 300 index was 0.4 percent lower.
"We still expect growth to return in the course of 2013 but
any return of growth will be very small which means that the
social impact of this recession, especially in the peripheral
countries, will be still a very severe one," Brzeski added.
German bonds rose as demand for traditional safe-haven
assets returned. Bund futures were 55 ticks higher on
the day at 142.60, having extended gains after Italian GDP
figures also came in weak.
Italy, which holds parliamentary elections in just over a
week, suffered its sixth successive quarterly fall in GDP - this
time a sharp 0.9 percent - putting it into a longer recession
than it suffered during the crisis of 2008/2009.
Italian bond yields rose 3 basis points on the
day to 4.42 percent while those on the Spanish equivalent
were 2.5 basis points higher at 5.23 percent.
U.S. stock index futures also pointed to a lower open on
Wall Street when trading resumes.
While European shares are down almost 1.5 percent since late
January, the U.S. S&P 500 index hit a five-year high this
week, underscoring the better growth forecasts for the world's
Data from the European Central Bank also weighed on Europe
as one of its quarterly surveys showed professional forecasters
now see no growth in the euro zone this year, having last
quarter expected a modest 0.3 percent rise.
The pain is not just in Europe. Japan - under pressure over
its aggressive monetary and fiscal policies which are driving
down the yen - reported earlier that its GDP shrank 0.1 percent
in the fourth quarter, leaving it in recession and crushing
expectations of a modest return to growth.
The yen steadied after swinging wildly this week following a
muddled warning on currencies from the G7 nations on Tuesday. It
slipped against the dollar but gained on the euro after the Bank
of Japan announced, as expected, that it would keep the pace of
asset purchases and interest rates unchanged.
The dollar traded at 93.35 yen, roughly flat on the
day and off its recent lows of 92.83 yen but still well below a
33-month high of 94.46 set on Monday. The euro was down 0.8
percent at 124.50 yen.
The yen's recent rapid depreciation, after years of sharp
appreciation, has drawn some criticism from overseas, with
rhetoric heating up before a Group of 20 nations meeting on
Friday and Saturday in Moscow.
"Usually the BOJ doing nothing causes a bit of
disappointment, but since there are concerns about the flak
Japan might get at the G20 this weekend for the weakening yen,
standing pat will actually be a relief to the market," said
Masayuki Doshida, senior market analyst at Rakuten Securities.
In commodity markets, oil prices dropped back under
$118 a barrel after the GDP data from the euro zone, although
the falls were limited by fresh tensions over Iran's nuclear
The United Nations nuclear watchdog said it had again failed
to clinch a deal in talks with Iran on investigating the
country's nuclear programme.
"All the discussions about Iran are keeping oil high while
it looks like China and the U.S. are growing, which is further
supporting prices," Thorbjoern Bak Jensen, analyst at
Copenhagen-based Global Risk Management, said.
Markets in China and Taiwan remain shut for the Lunar New
Year holiday but Hong Kong resumed trading on Thursday. Metals
markets were quiet as a result. Copper hit a 4-month high of
$8,346 a tonne on Feb. 4, but has since struggled to find
momentum with the Shanghai Futures Exchange closed this week.
Gold, which has been at five-week lows this week,
regained some strength, holding at $1,642.50 an ounce as recent
losses started to draw buying interest.