German investor confidence jumped the most on record in January as lending by the European Central Bank soothed financial markets and the economy showed signs of stabilising.
The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to minus 21.6 from minus 53.8 in December, its second straight increase.
The gain of 32.2 points is the biggest since ZEW started the index in December 1991.
Economists forecast a reading of minus 49.4, the median of 39 estimates in a Bloomberg News survey shows.
German business confidence unexpectedly rose for a second month in December and unemployment dropped, even as the sovereign debt crisis threatens to tip Europe's largest economy into recession.
ZEW's gauge of current economic conditions rose to 28.4 from 26.8. The euro climbed a quarter of a cent to $1.2800 immediately after the report.
Germany's benchmark DAX Index has risen 3.5 per cent this year after falling 15 per cent in 2011 as European leaders struggled to contain a debt crisis that started in Greece more than two years ago and spread to the region's core.
Standard and Poor's stripped France and Austria of their top credit ratings last week in a string of downgrades that left Germany with the euro area's only stable AAA grade. The downgrades probably came too late to be reflected in today's ZEW report, analysts said.
Bloomberg