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German investor mood in surprise gain

GERMAN investor confidence unexpectedly rose to the highest level in almost two years in March after the European Central Bank reduced borrowing costs to a record low.

The ZEW Center for European Economic Research in Mannheim said that its index of investor and analyst expectations rose to minus 3.5 from minus 5.8 in February.

That's the highest reading since July 2007. Economists expected a drop to minus 8, according to the median of 39 forecasts in a Bloomberg News survey.

The ECB on March 5 lowered its key rate by 50 basis points to 1.5 percent to stem the worst economic slump in 60 years.

In Germany, Chancellor Angela Merkel's coalition has agreed to spend about 80 billion euros (US$104 billion) to stimulate economic growth. Germany's benchmark DAX share index has gained 8 percent this month, paring its decline this year to 17 percent. The euro advanced almost half a cent to US$1.3021 on ZEW's report.

"Expectations are getting ahead of themselves," said Kenneth Broux, an economist at Lloyds Banking Group Plc in London. "Investors are looking at equity markets to provide a slightly more confident outlook, but in the economy there's no sign that we're near the bottom."

ZEW's gauge of current conditions fell to minus 89.4 from minus 86.2 in February. That's the lowest since September 2003.

There are signs that Germany's recession is deepening. Industrial output dropped 7.5 percent in January from December, the biggest decline since statistics began in 1991.

Factory orders plunged 38 percent from a year earlier as export demand slumped. Unemployment rose in February for a fourth straight month, pushing the jobless rate to 7.9 percent, while business confidence dropped to a 26-year low.

"There's still a lot of skepticism regarding government and central bank measures and concerns that they might not be effective enough," said Sebastian Wanke, an economist at Dekabank in Frankfurt.


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