German factory
An employee is pictured inside a room of German Opto semiconductor LED manufacturer Osram in Regensburg February 8, 2013. Reuters

The German Ifo Business Climate index nudged up to 107.7 points in September from a revised 107.6 reading in August, marking its fifth-straight month of gain, according to data released by the Ifo Institute for Economic Research on Tuesday. However, the index fell short of analysts' estimates, which had expected it to climb to 108 points.

The sub-index for business expectations in September, which rates the expectations of businesses in Germany for the following six months, rose to 104.2 from 103.3 in the previous month, Meanwhile, the sub-index for current assessment, which rates current business conditions in Germany without considering future expectations declined to 111.4 in September from a 112.0 reading in August.

“Although companies assessed their current business situation slightly less favorably, their business expectations were once again more optimistic. The German economy made a confident start to the autumn,” Kai Carstensen, Director of the Ifo Center for Business Cycle Analysis and Surveys, said in a statement.

The business climate indicator for manufacturing increased to 11.9 in September -- its highest level since June 2011 while the business climate index for retailing raced up to hit 6.4 -- its highest value since February 2011 -- from 2.6 registered in the previous month. But, the wholesale business climate edged downward due to a slightly less positive assessment of the current business situation, the survey said.

The uptick in the index indicates that Europe's largest economy is “stabilizing,” Carsten Brzeski, an analyst at ING, wrote in a note to investors, Associated Press reported. "Today's Ifo provides further evidence that fears about a sharp slowdown of the German economy in the second half of the year were overdone," he wrote.

The Ifo Business Climate Index is based on 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing on their assessment of the current business situation and their expectations for the next six months.

European markets, which moved up on Tuesday after the release of the business confidence index, lost some of their gains to trade mostly flat. The Stoxx Europe 600 index was up 0.07 percent while London’s FTSE 100 was up 0.07 percent and Germany's DAX-30 was trading up 0.09 percent. France's CAC-40 was trading up 0.49 percent.