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Germany's Business Sentiment Holds Steady in May

Germany's closely watched Ifo index of business sentiment held steady in May, just a whisker below its all-time high from late last year, the institute said Thursday.

The index, an important barometer of where Europe's largest economy may be heading, stayed at 108.6, where it was in April, below its record of 108.7 posted in December.

The index has been buoyant recently as German enjoys a strong economic recovery, fueled by strong exports and consumer demand at home. The strengthening German economy is one factor that has led the European Central Bank to raise interest rates for the 13 countries using the euro, and the current Ifo reading confirmed expectations of another rate hike in June.

The surveyed businesses assessed their current situation slightly less favorably than in April, but see the outlook for the coming six months improving, Munich-based Ifo said in a statement.

"The economic outlook thus remains positive," Ifo President Hans-Werner Sinn said in a statement.

About 7,000 businesses in manufacturing, construction, wholesaling and retailing participate in the survey.

Earlier, the Federal Statistics Office confirmed that adjusted gross domestic product grew 0.5% on the quarter and 3.3% from the first quarter a year ago, 3.6% when adjusted for calendar factors.

German production is rising and optimism among both businesses and consumers is reaching new highs. The government has also raised its forecast for 2007 economic growth for the second time this year, predicting that gross domestic product would increase by 2.3%.

The Organization for Economic Cooperation and Development raised its expectations for Germany's annual economic growth to 2.8% for this year and 2.5% for 2008.

Upbeat business sentiment in Europe's biggest economy should shore up markets' expectations that the European Central Bank will raise its key interest rate in June to 4.0% from the current 3.75%.