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By Dave Graham
BERLIN, Dec 5 (Reuters) - German manufacturing orders plunged in October after a record decline the previous month, raising the spectre of a record slump in Europe's largest economy as it struggles with a collapse in foreign demand.
Adjusted for seasonal swings, orders fell 6.1 percent in October, led by a sharp downturn in demand from Germany's euro zone trading partners, preliminary Economy Ministry data showed on Friday. A Reuters poll had forecast a rise of 0.4 percent.
Compounding the bad news, which helped to send the euro to a session low against the dollar, was a downwards revision to the September result to show a decline of 8.3 percent.
"German industry seems to be drowning in the financial crisis," said Carsten Brzeski, an economist at ING Financial Markets. "What started off as a relatively normal correction from very high levels has developed into serious collapse."
Economists said the data showed the European Central Bank would have to cut interest rates further and that a sharp depreciation in the euro had not brought exporters relief.
Domestic orders fell 6.1 percent. Foreign orders were down 6.2 percent, with euro zone orders falling 7.4 percent.
"Industrial production will decline further in coming months due to the persistent weakness in orders," the ministry said.
German business sentiment is near its lowest level in 16 years, and a survey of manufacturing firms published this week showed the outlook for new orders worsened in November.
Further highlighting the economy's woes, premium carmaker BMW said global sales plunged by a quarter in November as even wealthy consumers cut their spending.
A survey by the Ifo economic think tank showed a growing number of German firms are finding banks' lending conditions restrictive, particularly larger ones.
HISTORIC SLUMP FEARED
The German economy is already in recession and fears are mounting the country faces its biggest economic downturn next year since World War Two.
Deutsche Bank chief economist Norbert Walter told a newspaper that German gross domestic product (GDP) could contract by up to 4 percent in 2009.
This would be four times as bad as its previous worst one-year performance since the end of the war.
Germany, the world's biggest exporter of goods since 2003, is heavily exposed to foreign demand, and exports have slowed markedly despite a sharp drop in the euro against the dollar.
"The weak euro does not seem to have helped. The outlook for coming months is gloomy," said DZ Bank economist Philipp Jaeger. "We expect to emerge from recession next summer. If the numbers get worse, then we must correct our forecasts."
The ministry data showed orders for capital goods fell 8.2 percent in October, with those for intermediate goods down 4.5 percent. Consumer goods orders fell by 1.6 percent.
Juergen Michels, an economist a Citigroup in London, said Germany was heading for an historic slump in 2009.
"We expect a contraction (next year) of 1.5 percent," he said. "It could be worse though."
(Additional reporting by Paul Carrel and Madeline Chambers; Editing by Victoria Main)