* Industrial orders drop 1.3% in November
* Markets had expected a rise of 0.3%
* Demand from abroad especially weak (Adds Finance Minister Scholz, DIHK)
BERLIN, Jan 8 (Reuters) - German industrial orders fell unexpectedly in November on weak foreign demand and a lack of major contracts, data showed on Wednesday, suggesting that a manufacturing slump will continue to curtail growth in Europe's largest economy.
Germany's export-dependent manufacturers are struggling with sluggish demand from abroad as well as business uncertainty linked to trade disputes and Britain's decision to leave the European Union.
"The misery in manufacturing continues," VP Bank economist Thomas Gitzel said, noting that the military escalation between the United States and Iran was now posing an additional risk for businesses.
Finance Minister Olaf Scholz told reporters in Berlin that the situation in the Middle East had become "very dangerous". But he added that he did not expect any major consequences for growth, because Germany's domestic economy remained stable and there were signs the Sino-U.S. trade dispute was easing.
Contracts for German goods decreased by 1.3% from the previous month, posting the steepest drop since July, data from the Economy Ministry showed. That confounded the Reuters consensus forecast for a 0.3% rise.
Demand from other countries fell 3.1%, the biggest drop since February. Orders from domestic clients rose 1.6%. The reading for October was revised up to a rise of 0.2% from a previously reported decline of 0.4%.
DIHK economist Katharina Huhn said that orders from the euro zone had weakened significantly, suggesting a broader malaise in the region.
"In addition to the decline in foreign orders, there has also been a gradual decline in domestic demand," Huhn warned.
Without bulk orders, industrial orders rose 1.0% in November, the economy ministry said, adding that incoming orders had stabilized at a low level in recent months.
"At the same time, business expectations in manufacturing have brightened somewhat. So the outlook for industrial activity has improved a bit," the ministry said.
German business morale rose to a six-month high in December, a survey by the Ifo institute showed last month, suggesting that the German economy picked up in the fourth quarter despite manufacturing's problems.
The German economy probably grew 0.5% in 2019, down from 1.5% in 2018. The statistics office releases preliminary gross domestic product growth data on Jan. 15.
For 2020, the government forecasts 1.0% growth, helped by a higher number of working days. On a calendar-adjusted basis, Berlin predicts 0.6% growth this year. (Reporting by Michael Nienaber Additional reporting by Klaus Lauer and Rene Wagner; editing by Michelle Martin, Larry King)