German Stocks Fall as Fed Signals ‘Downside Risks'; BMW Drops

German stocks retreated the most in two weeks as the Federal Reserve signaled “significant downside risks” to the U.S. economy and Moody's Investors Service downgraded three American banks.Germany's biggest lenders, sank more than 6 percent. ThyssenKrupp Salzgitterfell with metal prices. Bayerische MotorenWerkeand Daimler led a selloff in European carmakers, both declining more than 5 percent.

The benchmark DAX Index lost 5 percent to 5,164.21 at the 5:30 p.m. close in Frankfurt, as all the index's members retreated. The gauge has fallen 31 percent from this year's high on May 2 amid concern that the global economic recovery is at risk from Europe's debt crisis. The broader HDAX Index also dropped 5 percent today.

“The market doesn't like uncertainty and it will remain volatile as long as nobody is coming up with a political solution in Europe,”
Wallner, a senior equity strategist at Commerzbank in Frankfurt. “Nobody is interested in company fundamentals or valuations at the moment. Everyone is only looking at macro-economic issues.”The Fed will replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further and counter rising risks of a recession.The central bank will buy securities with maturities of 6 to 30 years through June while selling an equal amount of debt maturing in three years or less, the Federal Open Market Committee said late yesterday after a two-day meeting.The action “should put downward pressure on longer-term interest rates and help make broader financial conditions moreaccommodativeadding that “there are significant downside risks to the economic outlook, including strains in global financial markets.”China's manufacturing may shrink for a third month in September, the longest contraction since 2009, after a preliminary index of purchasing managers showed measures of export orders and output declined. The reading of 49.4 for the index released Holdings Plc and Markit Economics compares with a final 49.9 for August and 49.3 for July. The gauge was below 50, the level that separates expansion from contraction, for eight months through March 2009.Euro-area services and manufacturing output contracted for the first time in more than two years in September. A composite index based on a survey of purchasing managers in both industries fell below 50 for the first time since July 2009, Markit Economicsin an initial estimate today. The index declined to 49.2 this month from 50.7 in August. Economists hadforecast a drop to 49.8,World Bank global economy has entered a critical phase, with developing countries facing growing challenges and the temptation to consider protectionist trade policies.Deutsche Bank and Commerzbank tumbled 8.4 percent to 21.90 euros and 6.4 percent to 1.56 euros, respectively. Moody's downgraded the long-term credit ratings of Bank of America support has become less likely if lenders get into financial troubleGermany's largest steelmaker, slid 7.9 percent to 18.74 euros, while Salzgitter, the second-biggest, lost 7.6 percent to 34.72 euros. Aluminum, copper, lead, nickel and zinc all retreated on the London Metal Exchange today.BMW and Daimler, the world's largest makers of luxury cars, slid 5.5 percent to 52.99 euros and 7.5 percent to 32.74 euros, respectively. European carmakers, as a group, have lost 10 percent over the last four days, headed for the biggest weekly drop in a month. 5.8 percent to 9.16 euros after Fedoperator of the world's biggest cargo airline, cut its full-year profit forecast amid declining demand