London, Aug. 28 -- The euro dropped against the dollar for the first day in four after a report showed German business confidence fell more than expected, adding to evidence an economic recovery is faltering. Europe's common currency fell as low as 97.94 U.S. cents, from 98.32 late yesterday. It traded at 98.06 at 10:55 a.m. in London, paring its gain this year to 10 percent. The yen weakened to 118.44 per dollar, from 118.07. The Ifo institute, which surveys about 7,000 companies, said its index of western German business confidence dropped to 88.8, from 89.9 in July. Economists had forecast a decline to 89.5.
``Europe has been affected by the global slowdown, and Germany has its own specific problems with growth,'' said Adrian Cunningham, who helps manage $150 million at Abbey National Plc's Talorcan hedge fund in Glasgow, Scotland. ``Everyone is cutting growth forecasts.''
European Central Bank Chief Economist Otmar Issing said yesterday that the economy of the 12 countries that share the euro is unlikely to grow at a rate near potential by the end of the year, Germany's Boersen-Zeitung newspaper reported.The ECB, in its monthly report on Aug. 8, said uncertainty about the strength of a recovery is ``high.'' The bank had said it sees growth at ``potential'' at the end of the year -- a rate of expansion of 2 percent to 2.5 percent.
``Germany has absolutely no good news,'' said Nobuaki Kubo, foreign-exchange manager at Daiwa Bank Holdings Inc. in Tokyo. ``Germany has no money, yet it has to pay for the flood damages. Combine that with weak growth, and it's easy to see why the euro is under pressure.''
To help finance construction after floods in eastern Germany, Chancellor Gerhard Schroeder will delay tax cuts that had been scheduled for next year. That may curb consumer spending.//www.quote.bloomberg.com