German jitters hit European shares, euro

LONDON (Reuters) - European shares fell for a second straight day and the euro slid on Thursday, as weak German retail sales and poor earnings at its biggest bank added to investors' nerves after a shock fourth quarter contraction in the U.S. economy.

Data on Wednesday showed U.S. GDP slipped back 0.1 percent, though the country's central bank, the Federal Reserve, indicated the pullback was likely to be brief as it repeated its pledge to continue providing support.

European shares, which have surged 3.7 percent this month, took their biggest daily hit of the year on Wednesday, and a plunge in German retail sales and a huge quarterly loss from Deutsche Bank dashed hopes of a quick rebound.

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were all around 0.3 percent lower by 0830 GMT as trading gathered pace after shares in Asia posted modest gains. <.l><.eu><.n/>

"Perhaps the German retail sales have contributed a little bit, but we knew that Q4 was weak, so I would it attribute it more to earnings news," said Chris Scicluna, an economist at Daiwa Capital Markets.

"The Deutsche Bank loss does look to be on the sizable side. There has clearly been some mismatch between financial markets and the real economy so that does lend itself to a bit of a pullback."

In the currency market, the German jitters also left the euro under pressure. It was well off Wednesday's 14-month high at $1.3548, though the Federal Reserves promise of continued support was expected to mitigate the fall by keeping downward pressure on the dollar.

The nervy market atmosphere also pushed up Spanish and Italian government bond yields as some investors switched from higher-yielding debt into German Bunds.

Spanish 10-year yields rose 10 basis points on the day to 5.31 percent, while equivalent Italian debt rose 10 bps to 4.38 percent.

German Bund futures were half a point higher, spurred on by the Fed's determination to maintain its policy of stimulus for the U.S. economy.

Spot gold hovered near its one-week high of $1,683.39 an ounce reached on Wednesday. A weak yen pushed the most active gold contract on the Tokyo Commodity Exchange to a record high of 4,944 yen a gram on Thursday.

(Reporting by Marc Jones; Editing by Will Waterman)

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