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German DAX falls as rate fears fuel profit-taking

FRANKFURT: Germany's DAX index fell more than two percent in profit-taking on Tuesday as concerns over possible interest rate rises in the United States and Britain weighed on the Frankfurt market. By 1100 GMT, the DAX was down 2.59 percent at 6,575.85 points on the back of a 1.2 percent fall by the Dow Jones Industrial Average overnight as bond yields rose to two-year highs amid fears of a possible hike in interest rates.

Heavy profit-taking, which began on Monday when the DAX fell three percent, continued after the market's 14 percent rise since its close on December 13, when the DAX began a streak of 11 record closes in 12 sessions.

Among the DAX's loss leaders on Tuesday were its few gainers on Monday, with software maker SAP AG and truck and machinery maker MAN AG down around four percent.

SAP, down 3.89 percent at 580 euros, was stung by news rival Baan expected a fourth quarter loss of $240-250 million, only part of which could be explained by restructuring costs.

German bank stocks extended falls after having soared on December 23 following news of a government proposal to eliminate taxes on sales of shareholdings between firms in 2001.

"Some investors are taking profits out of uncertainty over the government's achieving its tax plans," one trader said.

German banks and other financial firms have long held a web of minority stakes in German businesses and must pay taxes of around 50 percent on any profits from stake sales.

Deutsche Bank and Commerzbank were both down nearly three percent.

Traders said investors were looking for signs on whether technology and telecom stocks would be able to extend 1999's big gains or be replaced by cyclical stocks as market leaders.

On Tuesday, techs, telocoms and cyclicals all fell significantly, with Deutsche Telekom AG down 3.9 percent and Degussa Huels AG shedding 4.5 percent.

Preussag AG, up 2.5 percent at 53.56 euros, was the lone DAX gainer in light trade after a steep two-session fall.

Retailer Metro AG fell 1.4 percent to 49.87 euros, failing to benefit from news it had spun off all its retail properties at book values of about 5.4 billion marks into a joint venture with WestLB.

Metro aims to sell the properties on profitably over the next two to three years, saying it had transferred a total of 290 properties to a marketing company 51 percent owned by bank WestLB and 49 percent by Metro.

Metro said the move would free up funds for acquisitions and organic growth in its core business of retailing and electronic commerce where it expected higher returns than from its real estate.

The sale comprises a total of 290 properties including those of its unit Horten AG, food stores, inner-city department stores, DIY stores and hypermarkets in Germany, Turkey, Greece, Hungary and Luxembourg. The technology-rich Neuer Markt index for small companies fell 3.19 percent to 4,507.97.-Reuters