German business morale worsened in December to its lowest since January 2006, hit by a drop in firms' assessment of current business conditions that leaves Europe's largest economy looking weak going into 2008.
The Munich-based Ifo economic research institute said on Wednesday its business climate index, based on a monthly poll of around 7,000 firms, registered 103.0 after 104.2 in November. A Reuters poll of economists had pointed to a dip to 103.8.
The euro fell to session lows versus the dollar after the release of the data and Germany's DAX leading share index extended losses.
An Ifo gauge of current conditions fell in December to 108.1 from 110.3 the previous month. A reading of 110.0 had been forecast. The survey's expectations component dipped to 98.2, above the forecast 98.0, from 98.3 in November.
Ifo economist Hans Guenter Russ said the European Central Bank (ECB) should leave interest rates unchanged for now and look to trim them slightly in the second half of 2008.
Earlier this month, the ECB held interest rates at 4 per cent, but ECB President Jean-Claude Trichet said some members of the Governing Council had favoured a rate rise.