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German business confidence falls
 Merkel was sworn in Tuesday. RELATEDSPECIAL REPORTYOUR E-MAIL ALERTSBERLIN, Germany (Reuters) -- German business confidence fell more than expected in November as retailers took fright at government tax plans and firms braced for a rise in euro zone interest rates, a survey showed Thursday. The Ifo research institute said its monthly business climate index, based on a survey of around 7,000 companies, fell to 97.8 from October's upwardly revised five-year high of 98.8. A separate Ifo measure of the health of the German services sector, based on a survey of 2,000 firms, fell in October to 7.9, its lowest level since June. The euro dipped against the dollar and interest rate futures rose on the weaker-than-expected data, which highlighted the dilemma facing the European Central Bank as it prepares to raise rates for the first time since October 2000, analysts said. While euro zone inflation remains above the ECB's two percent tolerance threshold, the Ifo figures suggested the air fueling a broad euro zone recovery may have already got thin, HVB economist Andreas Rees wrote in a research note. "The doves within the ECB will dwell upon this topic," he added. A separate survey on Thursday showed French business confidence rose to a nine-month high in November, but other euro zone data - French consumer spending and Belgian business confidence - has disappointed this week. Ifo said the overall index was consistent with a moderate economic recovery but all sectors except construction grew more gloomy in the month. "In retailing the business climate worsened noticeably in November, with both more skeptical assessments of the current situation as well as the six-month outlook," Ifo said. VAT hikeEconomists blamed the drop in retailing sentiment on plans by the new German government to raise value-added tax sharply at the start of 2007 to help cut the country's budget deficit. That is expected to prompt consumers to accelerate big purchases in the second half of 2006 but hurt growth after. Bundesbank Vice President Juergen Stark said in Tokyo on Thursday the VAT plan could also lift German inflation by one percentage point if retailers passed it on to consumers. German inflation in November looks set to remain above the ECB's threshold, state data indicated on Thursday. It was the first Ifo survey to be published since the coalition announced its plans at the start of November. "The index is below our expectations. The main cause appears to be the miserable sentiment in retailing," said DZ Bank economist Bernd Weidensteiner. "That doesn't necessarily bode well for the Christmas business, which is what other surveys had been suggesting as well. Private consumption remains the brake on the economy." A breakdown of the survey showed Ifo's measure of current business conditions eased to 97.8 from 98.9 in October, while its gauge of expectations eased to 97.7 from a revised 98.6. Germany's major political parties agreed a coalition contract at the start of November, ending weeks of uncertainty following an inconclusive September 18 general election. The government, headed by conservative Angela Merkel, was sworn into office on Tuesday. 
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