Drop in Confidence

German businesses are afraid that the crisis in the United States housing industry will put the brakes on the euro-zone's largest economy. The ZEW research institute's economic expectations index, based on a poll of 306 analysts and institutional investors, fell by 17.3 points to -6.9 points this month, according to a ZEW press release.

It is the first time since January that the index has fallen into negative territory. The drop is even larger than the -5.0 analysts expected. The index was at 10.4 points in July. The recent decrease is a clear indication that experts expect the economy to lose its buoyancy.

A second index that measures institutional investors' assessment of the actual business climate, also dropped more than expected. It fell eight points to 80.2 points. Analysts had predicted it would fall to 84 points.

In its continuing effort to ease subprime-related fears, the European Central Bank pumped 275 billion euros ($370.6 billion) -- about 46 billion euros more than anticipated on Monday -- into money markets on Tuesday. The money was part of the Frankfurt-based bank's routine weekly financing.

Germany doesn't face crisis

Wolfgang Franz, head of the Mannheim-based ZEW, said despite the confidence drop, there's no cause for alarm in Germany.

"The crisis is first and foremost the Unites States' problem," he told reporters. "The possible impact on the German economy should, as far as we can tell, be limited."

Germany's export-driven economy, however, could suffer if US consumers rein in their spending habits as a result of the crisis in their loan markets, Franz said.

In recent months, the market for German exports had weakened in part due to the rising value of the euro against the dollar. This happened long before the subprime market in the US collapsed this month and threw world markets into turmoil.

Analysts cautioned against overreaction to the ZEW data.

"The results published today don't suggest an imminent recession," Brian Mandt, an economist at Postbank, told the AFP news agency. "They do however show that the risks to growth have increased."

ECB unlikely to raise rates

Andreas Rees of HVB/Unicredit agreed.

"This is more a matter of psychology than fundamental facts," he told AFP. "A meltdown for the German economy is not on the cards."

The new data has raised hopes among businesses that the European Central Bank won't its benchmark rate from a six-year high next month.

"If I could give advice to the ECB, it would be to keep rates stable," the ZEW's Franz said, according to Bloomberg news. "I think they should wait until this financial market turbulence passes."

Several large banks changed previous forecasts that the ECB would further increase rates this year, instead predicting that the rate will remain at 4 percent.