European Shares Sink on GDP Data, Before Key Paris Summit

European stocks sank Tuesday on news of a sharp slowdown in Eurozone powerhouse Germany, and before crisis talks on the economy between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

In morning trade, Frankfurt's DAX 30 index of leading shares dived 2.29 percent to 5,884.61 points, the Paris CAC 40 dropped 1.47 percent to 3,191.41 points and London's FTSE 100 slid 0.77 percent to 5,309.4.

Madrid lost 1.67 percent and Milan shed 2.20 percent, while the euro slipped to $1.4392 from $1.4440 late in New York on Monday.

Asian stocks were mixed on Tuesday, with Tokyo finishing up 0.23 percent and Seoul added a whopping 4.83 percent. However Hong Kong lost 0.24 percent, Shanghai was down 0.71 percent, Sydney was off 0.86 percent and Mumbai ended 0.65 percent down.

World stock markets had edged higher on Monday, steadying after recent losses that were rooted in fears that the U.S. and Eurozone debt crises could push the global economy back into recession.

But European shares dived Tuesday after Germany announced slower-than-expected 0.1-percent economic growth in the second quarter, which marked a spectacular slump from 1.3-percent growth in the previous three months.

"The news is not good and the markets will look at German weakness as a sign that the necessary financial ammunition is not there to keep European Monetary Union together," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London.

"Perhaps ... this recent sign of weakness in Germany will lead to a more urgent feeling on the part of the German government that something needs to be done, and very soon at that.

"The financial stability of the euro area is at risk, and the euro is the life blood of Germany's economic success," Gallo added.

Spain added that its economy slowed to 0.2 percent growth, further stoking fears of a dramatic slowdown in the Eurozone, which remains blighted by a sovereign debt crisis.

The Eurozone overall posted meager 0.2-percent expansion in the second quarter, dragged down by the rapid decline in German performance and a stagnant French economy.

Moving in the opposite direction from the United States and Japan, Eurostat's preliminary estimate showed the Eurozone slowing from 0.8 percent growth in the first three months of 2011.

France, the Eurozone’s second largest economy after Germany, reported last week that its growth stalled in the second quarter, following 0.9 percent in the first.

Debt-laden pair Italy and Spain, which are both under threat from the Eurozone crisis, logged only 0.3 percent and 0.2 percent growth.

Investors were anxiously waiting to see whether Sarkozy and Merkel would agree a plan to boost confidence in Europe.

"The key event for today ... is today's meeting of German Chancellor Angela Merkel and French president Nicolas Sarkozy this afternoon," said CMC Markets analyst Michael Hewson.

"It would seem that on the evidence of yesterday's return of risk appetite some market participants seem to have got it into their heads that we could see some progress at this meeting.

"In light of recent experience this seems highly unlikely, given that one of the solutions that could assuage investor concerns has been ruled out by both Germany and France respectively," he added.

Both sides had on Monday talked down the chances of a breakthrough, with Berlin and Paris flatly ruling out talk of issuing joint Eurozone bonds, or Eurobonds.

The idea of Eurobonds issued and guaranteed by countries with better credit ratings has long been floated as a way of helping struggling Eurozone members raise money on the markets at affordable interest rates.

"We do not expect any major developments to derive from this meeting," said economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.

"As highlighted yesterday, Germany's position on Eurobonds remains unchanged, continuing to prefer pressing for fiscal consolidation at the current juncture."

Germany is opposed to the introduction of Eurobonds as it believes it would increase its own borrowing costs and allow countries to duck badly needed reforms.

However the market uncertainty has prompted a record 22 billion euro ($32 billion) bond-buying intervention from the European Central Bank.