FRANKFURT (dpa-AFX) - A good two months after jumping to a record high, the Dax has been caught up by reality. After the German benchmark index has long ignored bad news such as high inflation, rising interest rates or weakening economy, the pressure to adjust has now probably become too great. Compared with the record level of 16,528 points reached at the end of July, the Borsen barometer has lost up to 8.5 percent. As things stand, however, the annual balance sheet still shows a double-digit percentage gain.

The performance of the Dax since the beginning of the year can be summarized simply: First strong, then a noticeable decline. Whereas the first quarter saw a gain of more than twelve percent, the second quarter saw only a good three percent. Since the end of June, the Dax has even lost ground.

"The third quarter showed that the upside potential for equities is currently limited," says investment strategist Ulrich Urbahn from the private bank Berenberg. Among other things, this is due to the fact that many investors have been forced into the market after the strong price increases in the first half of the year. As a result, there are now fewer and fewer buyers who are prepared to enter at this high level.

As recently as the end of July, hopes were still high that the latest interest rate hikes by the U.S. Federal Reserve and the European Central Bank could mean that the respective interest rate peaks would soon be reached. But capital market yields continued to rise recently nonetheless, signaling investors' belief that central bankers could not yet have ended the fight against sharply rising prices. Currently, the main concern is the rise in oil prices, which in many ways can dampen macroeconomic activity.

This is bad news for shareholders, after all, interest-bearing investments have long since become an alternative again. In addition to bonds, traditional forms of savings such as overnight or fixed-term deposits are currently attractive.

In addition, high interest rates are stifling economic activity because they make investments, loans and housing construction more expensive. Compared with the rest of Europe, Germany is suffering particularly badly from the current situation, as excessive bureaucracy, a substantial investment backlog and problems in the education sector are also holding back the economy. As a result, the hoped-for revival of the economy failed to materialize in the spring. Recently, the term "Europe's sick man" was used by the British magazine "Economist" to describe Germany at the turn of the millennium.

But despite this gloomy outlook, experts say the Dax should not come under too much pressure toward the end of the year. "True, in the short term, the U.S. Federal Reserve will continue its verbal battle against price increases to keep inflation expectations down with words but not with deeds," argues market analyst Robert Halver of Baader Bank. "The positive news, however, is that rising (credit) rates are taking force out of inflation, which argues for flattening interest rates again at the end of the year and thus higher stock prices."

Berenberg expert Urbahn believes a moderate setback followed by a volatile sideways movement is the most likely scenario in the coming months. Recently, economic data in Europe had surprised more negatively than in the U.S., but this could be reversed - not least because Europe is likely to feel less headwind from the currency side. This is because the euro, which has been weakening for months, can make exports to other European countries cheaper. This is seen as positive for strongly export-oriented companies.

Analyst Markus Reinwand of Landesbank Hessen-Thüringen is also convinced that economic activity could soon pick up again. In his opinion, the recent stabilization of the expectations component of the Ifo business climate index could be an initial indication that economic sentiment has bottomed out.

Sven Streibel, chief equity strategist at DZ Bank, sums up: "We see the recent malaise as nothing more than a customary correction after an unexpectedly successful year in the stock market. The opportunity for an end-of-year rally is still more than there."/la/ag/tih

--- By Lutz Alexander, dpa-AFX ---