RTTNews - German investor confidence rose more than expected to its highest level in almost three years in May, strengthening the view that the worst of the recession may have been over.

Tuesday, the Mannheim-based Centre for European Economic Research, or ZEW, said its economic sentiment indicator for Germany rose to 31.1 in May, the highest since June 2006, from 13 in April, while the forecast was for an increase to 20.

So analysts are hoping that the nosedive by the German economy is coming to an end, as several other indicators meanwhile suggest, Commerzbank analyst Ralph Solveen said. The emerging optimism shown in the survey should support the equity market, he added.

Following the surprise improvement in German economic sentiment, the euro jumped to a 5-day high of 1.3658 against the dollar, 6-day high of 131.87 against the yen and a 12-day high of 1.5170 against the Swiss franc.

The ZEW said in a note that modest signs of a recovery of the real economy over the last few weeks supported the optimism of the financial experts. For example, the strong decline of industrial production has come to an end and exports and incoming orders have started to rise again.

With regard merely to the economic activity, more and more signs indicate that the worst seems to be over. However, with regard to the labor market development the worst still seems to come, ZEW President Wolfgang Franz said.

In the first quarter, German gross domestic product or GDP dropped 3.8% quarter-on-quarter after falling a revised 2.2% in the fourth quarter, extending its contraction that begun in the second quarter of 2008. The first quarter economic slump also was the biggest since records began in 1970.

The number of unemployed in Germany rose for the sixth straight month in April, taking the seasonally adjusted jobless rate to 8.3% from 8.1%.

The gauge for the current conditions in Germany fell further to reach minus 92.8. It was in contrast to economists' expectations for an improvement to minus 90 from the previous month's minus 91.6.

Further, the ZEW said its economic sentiment indicator for Eurozone increased to 28.5 from 11.8 in the previous month and well above the expected reading of 18.

The indicator for the current economic situation in the Eurozone remains almost unchanged on a very low level. The corresponding indicator dropped by 0.2 points to minus 93.2 points.

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