The forward-looking GfK consumer climate survey index dropped to 3.9 points for July from a revised 4.7 points in June and its lowest level since December 2005.
The report comes a day after a separate measure of business confidence in Europe's biggest economy fell more than had been expected.
In Tuesday's consumer sentiment report, the GfK also revised its forecast for private consumption growth to 0.5 percent from 1 percent adjusted for inflation, which has recently risen to around 3 percent from 2.5 percent.
"Repeated announcements of new record petrol and diesel prices have compounded fears of a loss of purchasing power," the Nuremberg-based agency said in a statement. "Rising fear of inflation, combined with the sustained crisis in the financial markets, a strong euro and a weaker global economy mean that consumers are not very upbeat in their assessments of future economic growth."
All three of GfK's subindexes, which refer to current conditions in June compared with May, also fell.
The index that measures economic expectations dropped to 7.5 from 13.4 points a month ago. The index showing income expectations fell to negative 7.2 points in June from negative 4.3 points in May. The index showing consumers' consumption and propensity to buy fell to negative 23.7 in June from negative 20.4 points a month earlier.
"German consumers have now really thrown in the towel," said Andreas Rees, chief German economist at Munich's Unicredit.
"The major triggers were higher food prices and especially the record-high gasoline price. Admittedly, driving to a gas station had already not been a pleasure over the last few years. But now it was really torture for Mr. Average Citizen."
Rees said the fact that German summer vacations were starting probably also added to consumer sensitivity to the impact of high fuel prices and a reluctance to spend.
"To make things worse, the downturn in consumer sentiment is probably more than the simple loss in purchasing power," he said. "We think that part of the equation is also the loss of confidence in the future growth outlook."
On Monday, the Munich-based Ifo institute reported that its business climate index fell to 101.3 points in June from 103.5 points in May, a steeper decline than analysts had expected.
Ifo cited concerns over near-record oil prices as the major factor. Crude oil futures traded in New York peaked at $139.89 a barrel on June 16 and were trading above $138 by midday Tuesday in Europe.
The results of the GfK forecast are extracts from the GfK consumer climate MAXX survey, which is based on 2,000 consumer interviews, conducted each month on behalf of the European Commission.
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A South Korean high court on Tuesday
cleared U.S. private equity house Lone Star of manipulating the
stock price of a former credit card firm, removing an obstacle
to HSBC's $6.3 billion deal to buy control of Korea Exchange
The verdict, rejecting an earlier judgment, reduces legal
uncertainties for Lone Star (LS.UL) and raises hopes for
UK-based HSBC's (HSBA.L) purchase of KEB (004940.KS) from the
U.S. company, a deal seen as a major test of South Korea's
openness to foreign investors.
While the stock price manipulation case is the only legal
issue involving Lone Star directly, former government officials
and executives of KEB still face allegations that Lone Star's
2003 purchase of KEB was illegal. A verdict on that case is
expected by the end of the year.
"The main case is whether or not Lone Star bought KEB on
the cheap in collusion with various government officials. That
hasn't been resolved," said Peter Tebbutt, a director of Fitch
Ratings in Hong Kong.
"It is a good sign. It may indicate that the courts are
leaning towards their (Lone Star's) way."
The South Korean government has remained cautious about the
KEB sale given the legal troubles surrounding the investment
President Lee Myung-bak also has been grappling for more
than a month with daily street protests against his policies,
raising speculation that the Lone Star-HSBC (
would be unlikely to win regulatory approval by a deadline that
was extended to July 31 by Lone Star and HSBC.
A lower court in February found both Lone Star and the head
of Lone Star's South Korean operations, Paul Yoo, guilty of
driving down the share price of KEB's former credit card unit
by spreading rumors to allow the bank to buy the unit at
But the Seoul High Court threw out the previous judgment,
saying that Lone Star's 2003 announcement of a possible capital
write-down of the KEB card firm was not giving out false
information, but was rather one option it was considering for
the card unit.
"There is no evidence to prove Lone Star guilty of stock
manipulation," Koh Eui-young, judge of the Seoul High Court
said in a court ruling.
Shares in KEB fell 2.1 percent to close at 14,100 won,
underperforming the benchmark index's (.KS11) 0.3 percent fall,
reflecting lingering caution over the fate of HSBC's
acquisition. HSBC's Hong Kong-listed shares ended 0.57 percent
lower at HK$123 each.
PROSECUTORS TO APPEAL
Lone Star said in a statement it was "very gratified" by
the ruling. Its chairman, John Grayken, said: "We maintained
our innocence throughout this process, and are pleased today to
have the court's confirmation. We hope that now we can all put
this behind us and get back to business."
HSBC reiterated the bank's previous statement that it was
committed to buying KEB and waiting for regulatory approval.
HSBC early this month threatened to drop out of the deal
unless regulatory approval was given by its offer deadline of
"Korea remains an important market for us and we hope for a
positive outcome from our bid for at least 51 percent of KEB,"
an HSBC spokesman in London said.
"We will remain respectful of the process in Korea."
KEB also welcomed the ruling.
But the country's financial regulator, the Financial
Services Commission, said in a statement it was not appropriate
to go ahead with the sale process for KEB while legal
proceedings were ongoing.
Prosecutors will appeal the decision, a prosecutor said
following the ruling.
That may convince officials to hold off on approving the
deal until a supreme court decision and lead HSBC to pull out
to look for other opportunities.
The High Court also handed down a suspended two and a
half-year jail term for Lone Star's Yoo on separate charges of
negligence of duties in Lone Star's other investment deals in
South Korea. Yoo was cleared of the stock price manipulation
For an Instant View, click on
For a Chronology, click on
(Additional reporting by Park Ju-min, Rhee So-eui, Park
Jung-youn and Jon Herskovitz in SEOUL and Steve Slater in
LONDON; Editing by Jonathan Hopfner, Louise Heavens and Keiron
The focus in annual iron ore
price talks shifted on Tuesday to whether BHP Billiton
(BHP.AX)(BLT.L) would convince Chinese steelmakers to pay more
than the record settlement reached with Australian rival Rio
Tinto (RIO.AX)(RIO.L) a day earlier.
Rio's near doubling in term prices increases eclipses the
65 to 71 percent that Asian mills and Brazilian miner Vale
producer still in talks, hinted that it may still not be
The two miners typically follow the first settlement
reached, but the stakes have been upped this year as the value
they can squeeze out of their iron ore assets is seen as a key
factor in the $167 billion BHP bid for Rio.
The head of BHP's ferrous and coal business, Marcus
Randolph, said on Tuesday that Rio had failed to achieve an
adequate freight premium in its deal with Baosteel. It costs
$55-$60 per tonne less to ship ore from Australia than from
Brazil, he said.
BHP also raised the reserves at its biggest Western
Australia Iron Ore operation by 23 percent, and said the iron
ore division would triple its capacity between 2007 and 2015.
"This is an indication of the future potential of these
assets," Randolph said.
The stakes are also high for steelmakers like Baosteel
(600019.SS), which settled on Monday with Rio and saw its share
price slide 8 percent on Tuesday on worries about higher costs.
A failure by Baosteel to reach a settlement with BHP in a
meeting on Tuesday morning puts Asian steelmakers at risk of
Steelmakers in South Korea and Taiwan are waiting for
Japanese mills to reach a deal with Australian miners, but can
continue to pay last year's prices through September.
Other Asian steelmakers' shares were also lower, with South
Korea's Posco (005490.KS), the world's No. 4 steelmaker, down
1.9 percent despite an announcement that it would raise steel
prices by 21 percent in July.
MINERS BREAK RANKS
This year is the first time that miners have not all
accepted the same percentage change in iron ore prices, opening
the door to further differentials by quality and region.
"The benchmark pricing has system has now increased in
complexity. There is now a benchmark for each product," said an
That could change the tenor of annual term price
negotiations, in which traditionally all mills and miners
accept whatever settlement is reached first.
The annual pricing system has proven too inflexible as
rapidly expanding Chinese steel capacity caused spot iron ore
prices and freight rates to balloon over the last few years.
BHP and Rio have called for annual price talks to be
replaced by a more flexible index pricing system. They also
want higher prices to offset the lower cost of shipping ore
from Australia, compared with Brazil.
Rio and BHP shares both rose 3 percent in Australian
trading, with Rio turning in a marginally stronger performance.
The Chinese industry would have had to begin paying much
higher spot rates for iron ore from Rio Tinto had it failed to
reach a settlement by June 30.
While the Vale deal differentiated the price rise based on
the iron content of the ore, the Rio deal establishes a premium
for lump ore which moves it closer to pellet prices. Lumps and
pellets can be directly used in blast furnaces.
Baosteel agreed to a 79.88 percent price rise for Rio
Tinto's Pilbara blend fines and Yandicoogina fines, and a 96.5
percent price rise for Pilbara blend lump for the fiscal year
No price has yet been announced for Rio Tinto's lower
quality Robe ore.
For a graphic of Asian iron ore prices, click on:
(Additional reporting by Miyoung Kim in Seoul, Yuko Inoue
in Tokyo, Lee Chyen Yee in Taipei and Alfred Cang in Shanghai)