German investor sentiment surged far more than forecast in January to its most buoyant in two years, the ZEW institute said today.
Mannheim-based ZEW said its German economic expectations indicator, based on a survey of 303 analysts and institutional investors, jumped by 9.4 points to 71.0, up from a December reading of 61.6.
The news reinforces expectations of another rise in euro zone interest rates.
"There is a very definite business sector revival happening in Germany at the moment and it should be a driving force behind German growth going up to 1.9 per cent this year," said David Brown of Bear Stearns.
"It should also help to set the seal on the ECB's rate tightening plans as stronger economic recovery in Germany and the eurozone will give the ECB much better leverage for higher rates ahead."
The euro rose to session highs against the dollar on the data.
Germany's DAX index of leading shares, which hit a four year high on Monday, reacted little to the figures and was trading lower in line with other European markets.
ZEW attributed the rise to manufacturing orders data last week that suggested Germany's domestic economy may be responding to strong global demand for German exports, and expectations a planned tax hike may lead consumers to bring forward spending.
"The perspectives for 2006 have brightened considerably," ZEW President Wolfgang Franz, a member of the government's panel of economic advisers said in a statement.
He said financial markets appeared to believe the new government of Angela Merkel can deliver on its promises to tackle Germany's structural economic problems.
"Now it is decisive that both economic and wage policy come up to these expectations," he said.