Germany’s ban on naked short selling sent a tremor through the markets today, increasing fears that the euro was going to weaken further. Heavy machinery makers like Deere & Co. (NYSE: DE), Caterpillar, Inc. (NYSE: CAT), and CNH Global N.V. (NYSE: CNH) which could take a hit from reduced construction overseas, watched share prices drop between 2% and 5% even though Deere reported that it beat EPS and revenue expectations.

Deere reported EPS for its 2010 second quarter of $1.28, compared with analysts’ estimates of $1.09. Revenues of $7.13 billion also exceeded expectations of $6.85 billion. Deere’s results exclude a -$0.30 tax charge due to the impact of the health care reform legislation.

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Since mid-April, when both Caterpillar earnings and CNH rearnings came in strong, all three stocks have trended down, with Caterpillar and Deere off about 5% while CNH has fallen about 12%. The news from Europe is not good, of course, but none of these companies had really been expecting a boost from Europe, where sales have been steadily weaker.

Deere also raised its earnings forecast for the fiscal year  from 6%-8% to 11%-13% better than 2009, and jumped its forecast for its third quarter to 21%-23% above the same period a year ago. The company expects a 9%-11% annual rise in its agriculture and turf division, even including a 10%-15% decline in sales to Western Europe. Construction and forestry equipment sales are expected to jump 30% for the full year.

Deere is finally seeing an uptick in its DE stock price of nearly 3% on very heavy volume, while both Caterpillar and CNH, which are much more exposed to European markets are still off by more than 2%.

Investors and currency traders are worried that the German parliament won’t approve Germany’s share of the $1 trillion bailout package. Without Germany’s contribution, the euro could go into free fall. Even with it, Germany’s ban on naked shorts casts a new load of doubt on the euro’s ability to stay afloat. Germany wants to stop a speculative attack on the euro with this ban, but the problem has been that investors are selling off European debt because there is real concern that the debt cannot be repaid.

The heavy machinery makers are feeling the impact of all this uncertainty today. On any other day, Deere’s report would likely have pointed the stock at a new 52-week high.

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