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German Feb. Ifo Business Climate Index Rises

German corporate sentiment unexpectedly rose in February, a closely watched survey showed on Tuesday, suggesting Europe's largest economy is coping better with a global slowdown than other euro zone countries.

The Munich-based Ifo economic research institute said its business climate index, based on a monthly poll of around 7,000 firms, rose to 104.1 from 103.4 in January.

A Reuters poll of economists had pointed to a fall to 102.8.

The euro rose against the dollar and Bund futures dropped after the release of the stronger-than-expected data, which showed a rise in the index for the second month running.

"That's a positive surprise. It's almost exclusively thanks to the retail sector, where business improved significantly," said Alexander Koch, economist at UniCredit. "It looks as if we're at least getting a stabilisation at the beginning of the year," he added. "Private consumption in the first quarter might at least no longer be a burden on growth."

An Ifo component index on retailing rose to 1.3 from -17.5 in January.

German households have been reluctant to raise their spending despite falling unemployment, with many worried that welfare reforms mean they will have to provide more for themselves in old age, and increasing their savings rate as a result.

Private consumption subtracted 0.4 percentage points from German gross domestic product (GDP) in the fourth quarter, but the Ifo report suggested that weakness may be overcome in 2008, amid lower unemployment and higher wages.

The rise in German sentiment contrasted with a bleaker picture in Italy, where business morale fell for the fourth month running in February to its lowest level in 28 months as firms reported a fall in orders.

In the Netherlands, consumer confidence fell to its lowest level in two years in February.

"On the whole, the economic situation of German industry and trade is robust, but the expectations continue to point to a cyclical weakening," Ifo said in a statement.

In positive news from Germany's corporate sector, sportswear maker Puma on Tuesday reported a 20.7 percent rise in fourth-quarter earnings before interest and tax (EBIT) and said it expected EBIT to rise further in 2008.

A separate Ifo gauge of current conditions rose to 110.3 in February from 107.9 the previous month. A reading of 107.2 had been forecast.

The survey's expectations component dipped to 98.2 from 99.0 in January compared with the forecast 98.7.