UPDATE 2-German business morale hits 3-1/2 yr high in Oct

* Business sentiment, expectations post surprise rise

* Ifo highest since May 2007, fifth climb in a row

* Euro rises, Bund futures fall after release of data

(Adds further details, background)

By Annika Breidthardt

BERLIN, Oct 22 (BestGrowthStock) – German business sentiment hit its
strongest in 3-1/2 years in October and firms’ expectations also
improved, with a key survey on Friday suggesting that a recovery
in Europe’s largest economy may hold up better than expected.

The Munich-based Ifo think tank’s business climate index,
which points to growth levels six months ahead, climbed to 107.6
from 106.8 in September. That was its fifth increase in a row
and the highest since May 2007.

The mid-range forecast in a Reuters poll of 44 economists
had been for a slight fall to 106.5. (ECONDE: )

The Ifo survey is one of Europe’s most influential monthly
numbers for financial markets and the surprise rise helped push
up the euro briefly against the dollar and pressured December
Bund futures [ID:nLDE69L0IN]

“Firms have once again given more positive assessments of
their current business situation and their business expectations
have improved,” Ifo said in a statement. “The engine of economic
activity is running smoothly.”

An Ifo index for business expectations also rose
unexpectedly to 105.1 from 103.9, pointing to further strong
growth and confounding expectations that a gloomy outlook for
Germany’s trade partners would send the economy into a sharp
slowdown.

Analysts say the strong figures highlight the risk of
Germany leaving its peers behind in the upswing, with some
saying it is now growing at least twice as fast as the overall
euro zone economy.

Earlier this week closely-watched purchasing managers’
surveys suggested recovery momentum in the wider euro zone was
fading, despite the stellar performance by its biggest economy.
[ID:nLDE69K1CV]

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Graphic on http://r.reuters.com/meg79p

Reuters Insider show on http://link.reuters.com/wef79p

Reuters Insider interview on http://link.reuters.com/puz59p
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“NEVER BET AGAINST THE IFO”

A healthy labour market and improving consumer confidence
mean German domestic demand is picking up and Economy Minister
Rainer Bruederle said on Thursday that domestic demand would
make up three quarters of growth in 2011.

He also more than doubled the government’s 2010 growth
expectations to 3.4 percent this year and predicted growth would
slow to a still firm 1.8 percent next year.

“This (Ifo) is a super figure. It shows that the economy
continues to grow strongly. Not only were the conditions
improved but also the expectations continued to rise further,”
said Ralph Solveen of Commerzbank.

“I would never bet against Ifo. Ifo has turned out to be
accurate most often. But that doesn’t mean we’ll have a
permanent boom.”

Germany’s private sector also grew faster than expected in
October, with both services and manufacturing gaining.
[ID:nLDE69K0V3]

Signs from the corporate sector have also been bullish, with
global chemicals maker BASF (BASFn.DE: ) predicting better than
expected gains in 2010 operating profit by at least two thirds
after a strong quarter, though it stopped short of forecasting
the same pace of growth next year. [ID:nLDE69J07L]

Germany’s bluechip Dax (.GDAXI: ) index climbed above 6,600
points this week for the first time since August 2008, but still
has some way to go regain pre-crisis levels around 8,000 points.

Surging exports have helped Germany emerge quickly from its
deepest post-war slump last year, boosting growth to 2.2 percent
in the second quarter, the highest in reunified Germany.

However, the euro has gained almost a fifth since a June
low, making German exports more expensive outside the currency
bloc.

Ifo also pointed to currency tensions threatening the world
economy and Ifo economist Klaus Abberger said an unpleasantly
quick appreciation of the euro was problematic for German firms.

Speaking as Group of 20 finance and central bank chiefs meet
in South Korea to seek an agreement on a common path to manage
currency, trade and economic imbalances, he also said the
Chinese yuan should appreciate.
(Additional reporting by Paul Carrel, Stephen Brown, Sarah
Marsh, Erik Kirschbaum and Christian Kraemer in Munich; Editing
by Toby Chopra )
(Reporting by Annika Breidthardt; editing by Patrick
Graham/Toby Chopra)

UPDATE 2-German business morale hits 3-1/2 yr high in Oct