German Stocks Drop on U.S. Stimulus Concerns, China Data

German stocks fell the most in more than a month amid investor concern that the Federal Reserve will reduce its stimulus measures if the U.S. economy improves and as data showed Chinese manufacturing is contracting.

Volkswagen AG and Continental AG lost at least 3.5 percent as a gauge of automakers posted the biggest drop on the Stoxx Europe 600 Index. Aixtron SE declined 4.5 percent after saying it will cut 20 percent of its German workforce.

The DAX Index (DAX) slumped 2.7 percent to 8,302.18 at 3:25 p.m. in Frankfurt, its biggest drop since April 17. The benchmark gauge has still rallied 9.1 percent this year as central banks around the world maintained monetary stimulus. The broader HDAX Index lost 2.6 percent today.

"After almost all major global indexes recently reached all-time highs, maybe now is the time to say sell at the end of May and go away," Daniel Kukalj, an equity analyst at Close Brothers Seydler Research in Frankfurt, wrote in a note. "The expectations on corporate earnings are immensely high and a disappointment is likely if the economic environment does not change dramatically. Furthermore, China's growth is faltering."

European markets gained late yesterday after Fed Chairman Ben S. Bernanke said in a testimony to the Joint Economic Committee of Congress in Washington that reducing stimulus measures too soon would endanger economic recovery.

U.S. stocks, which had rallied on those comments, later fell after Bernanke indicated that the central bank will scale back stimulus if economic conditions improved. He said the flow of purchases could be reduced "in the next few meetings" if the Fed is confident gains in the economy can be sustained.

Chinese Manufacturing

In China, a report showed manufacturing is contracting in May for the first time in seven months. The preliminary reading of a purchasing managers' index for Chinese manufacturing declined to 49.6 in May from 50.4 the previous month, HSBC Holdings Plc and Markit Economics said today. That missed the 50.4 median estimate in a Bloomberg News survey. A reading below 50 signals contraction.

Japan's Topix index tumbled almost 7 percent, the most since the aftermath of the March 2011 tsunami and nuclear disaster, as financial firms slid amid rising bond yields. The rout triggered a halt in index futures in Osaka. The MSCI Asia Pacific Index slid 3.4 percent.

Volkswagen, Europe's biggest carmaker, lost 3.8 percent to 165.90 euros. Continental, Europe's second-largest auto-parts supplier, retreated 3.6 percent to 98.74 euros.

Bayerische Motoren Werke AG, the biggest maker of luxury cars, fell 3.3 percent to 70.96 euros. Daimler AG, the third-biggest, slid 4.5 percent to 47.45 euros.

Banks Decline

Deutsche Bank AG and Commerzbank AG, Germany's largest lenders, fell 4.2 percent to 35.63 euros and 5.7 percent to 7.89 euros, respectively.

Deutsche bank co-CEO Juergen Fitschen said in a speech to shareholders in Frankfurt today that some investors may be underestimating the ramifications of the euro area's debt crisis and a political stalemate over the U.S. debt ceiling.

Aixtron lost 4.5 percent to 12.30 euros. Chief Executive Officer Martin Goetzeler said the technology company that manufactures equipment for the semiconductor industry will cut jobs in Germany as part of a program to return to profit.

Celesio AG retreated 5.1 percent to 15.91 euros. UBS AG downgraded the drug wholesaler to sell from buy. The brokerage said that government austerity measures have pressured manufacturers and pharmacies, squeezing prices for Celesio.

The volume of shares changing hands on DAX-listed companies was 14 percent greater than the average of the past 30 days, data compiled by Bloomberg show.