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UPDATE 1-Ifo rises as Ukraine has little effect on German business

* German businesses shrug off Ukraine crisis

* Ifo surprise rise signals German economy is in "very good shape"

* Firms see war as unlikely, effect on economy limited - analyst

* Graphic: http://link.reuters.com/kyc48t

(Adds details, comment)

BERLIN, April 24 (Reuters) - German firms shrugged off concerns about tensions between the West and Russia over Ukraine, helping the Ifo business climate index to a surprise increase in April and signalling that Europe's largest economy is on track for firm growth this year.

The Munich-based Ifo think tank's business climate index, based on a monthly survey of some 7,000 firms, increased to 111.2 from an unrevised 110.7 in March.

Expectations in a Reuters poll of 40 economists had been for a fall to 110.5 after the index slipped on Ukraine worries last month.

"Ukraine is still a factor but the positive general mood prevails. The German economy is in very good shape," said Ifo economist Klaus Wohlrabe. "The uncertainty seen in March has not yet taken hold."

U.S. President Barack Obama said on Thursday that more sanctions were "teed up" against Russia if it did not deliver on promises in an agreement in Geneva last week to ease tensions in Ukraine.

Germany receives more than a third of its gas and oil from Russia. More than 6,000 German firms are active there and businesses have already warned that an escalation of the Ukraine crisis would result in catastrophic losses for firms.

But having fallen last month, firms' expectations improved in April as companies viewed the likelihood of an escalation as limited. Their views on their current situation also inched up.

"The situation in eastern Ukraine remains volatile and dangerous and poses the most serious risk to the euro zone recovery at the moment," said Christian Schulz of Berenberg Bank.

"But German businesses seem to estimate that the worst-case scenario of a war between Russia and Ukraine and escalating sanctions all the way to disruptions of Russian energy supplies to Europe remains unlikely."

So far the United States and European Union have imposed visa bans and asset freezes on only a limited number of Russians over Moscow's annexation of Crimea last month.

As long as the standoff does not turn into war, analysts expect the German economy to grow nearly five times as fast this year as in 2013, according to a Reuters poll this month. .

They expect growth of 1.9 percent this year, just higher than government projections for growth of 1.8 percent, supported by relatively strong domestic demand and low unemployment. That follows 0.4 percent expansion last year.

(Reporting by Berlin Newsroom; Editing by Madeline Chambers)