German analyst and investor sentiment rose for an eighth straight month in June to its highest level since May 2006 but economists warned that Europe's largest economy remained in a tough spot.
The Mannheim-based ZEW economic think tank said today its monthly poll of economic sentiment rose to 44.8 from 31.1 in May, surpassing the consensus forecast in a Reuters poll for a rise to 35.
A separate gauge of current conditions rose to -89.7 from -92.8. A reading of -92.8 had been forecast.
The euro jumped to the day's high against the dollar and Bund futures fell after the stronger-than-expected reading, though economists cautioned against reading too much into the improved numbers.
"The survey gives the impression that we could be looking at normal economic activity again by the end of the year. We do not see things this way," said Rainer Sartoris at HSBC Trinkaus.
"Survey participants are somewhat removed from the real situation, which is still very bad," he added.
Finance ministers from the Group of Eight economic powers also struck a note of caution at a weekend meeting, noting in their communique that: "There are signs of stabilisation in our economies... but the situation remains uncertain and significant risks remain to economic and financial stability."
Other leading indicators on the German economy have shown improving conditions.
Purchasing manager surveys released earlier this month showed activity in Germany's private sector shrank at its slowest pace in seven months in May and business expectations in the services sector surged to a 16-month high.
However, unemployment rose for the seventh straight month in May and economists expect it to keep rising into next year.
"The good news about the ZEW index is that the assessment of current conditions improved slightly. That is supporting the market a bit," said Commerzbank economist Hans-Juergen Delp.
"But it will only be able to breathe easy when hard data on the real economy confirm this," he added.
Germany, the world's biggest exporter of goods since 2003, is suffering from a collapse in purchases from abroad.
The economy contracted by a record 3.8 per cent in the first quarter of this year and the government expects gross domestic product (GDP) will contract by 6 per cent over the full year.
Reuters