European stocks, euro drop; German bonds shaken

European stocks slipped and the euro hit a six-week low point against the dollar on Wednesday as Germany suffered weak demand for 10-year bonds, reflecting "nervous market" sentiment amid poor economic data. Markets were meanwhile on tenterhooks as the EU prepared to unveil controversial plans for eurobonds. Approaching midday in London, the benchmark FTSE 100 stocks index fell 0.67 percent to 5,172.11 points, Frankfurt's DAX 30 shed 0.38 percent to 5,516.09 points and in Paris the CAC 40 lost 0.56 percent to 2,854.56. Madrid slipped 0.75 percent and Milan gave up 0.56 percent. The euro declined to a six-week low of $1.3374 from $1.3507 late in New York on Tuesday. The dollar rose to 77.18 yen from 76.92 yen and gold prices dipped to $1,688.93 an ounce from $1,699 on Tuesday. "There's been a lot of talk lately that perhaps Germany isn't the safe-haven that many people thought it was," said UBS currency strategist Chris Walker. Germany was able to place only 3.6 billion euros' worth of its benchmark 10-year "Bund" from a total of 6.0 billion euros on offer, said the country's finance agency, which issues such bonds. "The result of today's auction reflect the extraordinarily nervous market conditions. It doesn't mean any refinancing bottleneck for the budget," insisted Joerg Mueller, a finance agency spokesman. The average yield on the bond was 1.98 percent, the agency added. Meanwhile, the European Union seems set to start down a road to far-reaching legal changes that would see the EU police budgets before they pass domestic lawmakers, a pre-condition for pooled eurozone bond sales. Jose Manuel Barroso, head of the executive EU Commission, and 'euro' commissioner Olli Rehn, present shortly after 1100 GMT controversial proposals pitched as key to preventing a repeat debt crisis. According to a draft of the proposals seen by AFP, the EU executive will suggest the introduction of so-called "stability bonds" which they believe could bring down borrowing costs of struggling nations "relatively quickly." However, the idea has run into opposition in Germany, which fears that as Europe's biggest economy and the state with the lowest borrowing costs, it would have to pick up the tab if eurozone debt were pooled. Chancellor Angela Merkel maintained Germany's hard line against the introduction of eurobonds and allowing the European Central Bank to act as lender of last resort in the eurozone debt crisis on Tuesday and again in a speech on Wednesday. "The reason we're waiting around here (on eurobonds) is because everyone knows the game in Europe is up," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange. "Everyone knows, I think, that in the near-term, this is less about Greece, Spain or Italy 'complying' with adjustment measures and more about what Germany -- through various means -- is prepared to give," he added. Traders were also digesting weak economic data out of the eurozone, China and the United States. Eurozone private sector activity retreated for the third month running in November as businesses worry about the impact of the debt crisis on the economy, a closely-watched survey showed. China's manufacturing activity meanwhile slumped to its lowest level in 32 months in November, said banking giant HSBC, renewing fears the Asian powerhouse was losing steam amid global economic woes. Asian stock markets closed lower on Wednesday, following the lead from Wall Street overnight, after revised US growth figures showed the world's number one economy expanded slower than thought in the third quarter. Hong Kong shares tumbled 2.12 percent and Shanghai fell 0.73 percent, while Tokyo was closed for a public holiday. In Washington on Tuesday, the Commerce Department said the US economy grew 2.0 percent in the July-September quarter, slower than the 2.5 percent estimated a month ago. Many economists had expected no change. The Dow fell 0.46 percent on Tuesday, the Nasdaq slipped 0.07 percent and the S&P 500 lost 0.41 percent.