German Chancellor Angela Merkel talks with trainees during a visit with Mader GmbH near Stuttgart.

German business sentiment fell in April, according to a key domestic survey, as cold weather and the Cyprus bailout hit industries hard in Europe's largest economy.

The Munich-based Ifo Institute's benchmark Business Climate Index, a survey of more than 7,000 German business executives, fell to 104.4 in April from 106.7 in the previous month, the group said in a statement published Wednesday on its website. Analysts polled by Reuters had anticipated a reading of 106.2 Its key index of current conditions also declined to 107.2 and its reading of economic and business expectations slipped to 101.6 - both shy of analysts' estimates.

"Although the majority of companies assessed their current business situation as good, they were far more cautious than last month," said Karl Carstensen, the Ifo's head of department business cycle analysis and surveys. "Their expectations regarding future business developments were also lower. The Germaneconomy is taking a breather.In manufacturing the business climate."

The euro fell to a three-week low of $1.2957 against the US dollar immediately following the data release. German bund futures, a proxy for market risk, rose 16 ticks to a session high of 146.25

The figures follow data published Tuesday by Markit economics which showed marginal improvement in Eurozone economic activity in April alongside a surprise slowdown in both manufacturing and service-sector activity in Germany after the coldest March in more than 25 years.

Both figures gave rise to investor speculation that the European Central Bank might consider cutting its key refinancing rate from the current record low 0.75 percent at either its next meeting in Bratislava on 2 May or the following month in Frankfurt.

Ifo's chief economist Klaus Wohlrabe, however, said he did not expect the ECB to lower its lending rate and suggested the move would have little impact on the Germany economy even if it did and that he still anticipates a strong second quarter recovery.