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German investor morale drops to lowest in one-and-a-half years in July

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange October 24, 2012. REUTERS/Remote/Lizza David

By Paul Carrel and Andreas Framke

MANNHEIM Germany (Reuters) - German analyst and investor morale dropped in July for a seventh straight month to its lowest level since December 2012, a leading survey showed on Tuesday, suggesting the third quarter got off to a shaky start for Europe's biggest economy.

Mannheim-based think tank ZEW's monthly survey of economic sentiment fell to 27.1 in July, missing the consensus forecast in a Reuters poll for a reading of 28.0 as political risk in the Middle East weighed on the mood.

The data sent the euro down to a session low against the dollar, helped Bund futures extend gains and caused Germany's DAX index (.GDAXI) to weaken slightly.

"July's fall in German ZEW investor sentiment adds to signs of a slowdown in the euro-zone's largest and strongest economy," said Jennifer McKeown, senior European economist at Capital Economics.

"The expectations index has been a reasonable indicator of turning points in the economic cycle in the past and its deterioration is another warning not to expect too much from the German recovery."

The German economy grew by 0.8 percent in the first quarter, it strongest rate in three years, but that was largely due to mild weather boosting construction work so a slowdown is widely expected in the second quarter before picking up in the third.

Recent data from Germany has been subdued, with exports, imports, industrial orders, output and retail sales all falling in May compared with a month earlier. Business sentiment has also taken a turn for the worse.

ZEW President Clemens Fuest said Germany's economic activity had experienced "a slight dent" recently and the decline in the sentiment indicator mirrored "this sobering development".

But he added: "On a general note, however, the medium-term economic outlook remains favourable,"

The government has forecast 1.8 percent growth this year, driven by domestic demand.

A separate gauge of current conditions decreased to 61.8 from 67.7 in June, undershooting the consensus forecast for a reading of 67.0. That was its lowest reading since April.

The index was based on a survey of 238 analysts and investors conducted between June 30 and July 14, ZEW said.

(Writing by Michelle Martin; Editing by Stephen Brown)