Germany's Ifo business climate index rose for a fifth month in a row in September, but the Munich-based institute said a drop in firms' assessment of current conditions made it cautious on the economic outlook.
Ifo said its west German business climate rose to 91.9 from 90.8 in August, in line with a median forecasts for a rise to 92.0 and bucking trends in Belgium and Italy, which reported declining business confidence.
But the move was limited to an improvement in expectations for the next six months, while current conditions slipped. Ifo's east Germany business climate index dipped slightly to 104.0 from 104.1, also due to a gloomier assessment of current conditions.
Ifo head Mr Hans Werner Sinn said the drop in firms' view of the current situation was a "call for continued caution" on Germany's economic outlook.
German equity prices gave up some ground on the news, although bond markets were little changed.
"It's not assured that this will be a great recovery. It will be a hesitant upturn," Ifo economist Mr Hans Guenter Russ told reporters.
Europe's largest economy has shown signs of emerging from its second recession in as many years, but the strength of the upturn is uncertain.
Ifo expects the German economy to stagnate this year but in July raised its forecast for 2004 growth to 1.7 from 1.5 per cent, citing government efforts to reform the economy.