* June KOF 89.7 points vs 92.7 in May
* Lowest level since December 2011
* Franc seen in demand amid euro zone crisis (Adds analyst comment)
ZURICH, June 30 (Reuters) - Switzerland’s leading economic indicator dropped three points in June to its lowest since December 2011, the KOF research institute said on Tuesday, reversing May’s rise and falling well short of market expectations.
The indicator, which points to economic activity in half a year, fell to 89.7 points from a downwardly revised 92.7 in May. That missed even the lowest estimate in a Reuters poll, which on average had forecast a rise to 93.5.
The May reading had originally been reported at 93.1.
“The highly resilient Swiss economy is clearly feeling the consequences of a strong Swiss franc and the economic outlook does not look great,” said Swissquote analyst Arnaud Masset.
The Swiss economy has been labouring under the strength of the Swiss franc, which surged after the Swiss National Bank in January stopped trying to hold its value at 1.20 francs to the euro.
The euro is trading around 1.04 francs despite SNB intervention, making exports to the euro zone more expensive.
Swissquote’s Masset warned that the franc is set to remain in demand until the euro zone crisis eases.
“After the increase in the last month was largely driven by the improved sentiment in industry, the renewed decline of the Economic Barometer is now mainly due to a negative development of the indicators in the industrial sector,” KOF institute said.
Negative sentiment in the sector runs virtually across the board, with the largest negative contribution from the metal and wood sector. But the construction industry seemed to be recovering somewhat, especially the architectural business.
The financial sector and business linked to foreign demand made negative contributions, while consumption indicators were largely neutral, KOF said. (Reporting by Michael Shields; Editing by Larry King/Hugh Lawson)