Berlin  - German business confidence rose for the seventh successive month in October, analysts predict a key survey to be released Friday will say, as recovery takes hold in Europe's biggest economy.

In a major test of the economic mood in Europe, the closely- watched Ifo business confidence index is projected to rise to 92 points, after climbing to 91.3 in September, its highest level in nearly a year.

Drawn up by the Munich-based Ifo economic research institute, the Ifo index's predicted rise comes despite the euro's climb in recent months, which has fuelled concerns about the outlook for Germany's key export machine.

But the release of this month's Ifo index also follows signals from the European Central Bank that it is in no rush to hike interest rates, alongside an optimistic start to Germany's third-quarter company reporting season.

This includes better-than-forecast preliminary earnings' reports from giant German carmaker Daimler AG, the nation's biggest bank Deutsche Bank AG and BASF AG, the world's biggest chemical group.

Based on a survey of 7,000 executives, the Ifo's release coincides with Chancellor Angela Merkel's attempts to hammer into place a new centre-right coalition government following her conservative political bloc's success at last month's national election.

But Merkel's Christian Democrats have so far failed to reach agreement with its nominated coalition partner, the business-friendly Free Democrats on the size of planned corporate and income tax cuts, which are to a key policy platform of the new government.

With Germany having already emerged from its deepest recession in a generation, another rise in the Ifo index should add to expectations that the recovery will gain ground in the runup to the end of the year.

Analysts predict that the executives' assessment of both current economic conditions and their expectations of conditions six months down the track drove the Ifo index higher this month.

While the Ifo index component measuring the current business climate is tipped to edge up this month to 87.6 points from 87 in September, the expectations gauge is forecast to rise to 96.2 points from 95.7 last month.

However, it is the scale of the recovery in Germany that remains open to questions.

Underscoring the fragile upswing underway in Europe's biggest economy, German investor confidence posted a surprise fall in October.

The Mannheim-based Centre for European Economic Research's (ZEW) monthly index measuring the mood among German analysts and institutional investors slipped to 56 points this month.

Analysts had expected the ZEW index, which was released earlier this month, would edge up to 59 points in October after it climbed to a more-than-three-year high of 57.7 points in September.

Moreover, concerns remain that a pickup in unemployment combined with the euro's ascent could end up slowing the pace of the German economy's recovery from what has been its biggest downturn in a generation.

While still short of the more than 1.60-dollars all-time high that it hit in mid-2008, the euro has climbed by about 20 per cent since the start of the year to trade within a whisker of the critical 1.50-dollar mark.

Despite strong rises in both industrial orders and production, German exports posted a surprise fall in August.

At the same time, economists are worried that the winding back of the German government's 85-billion-euro (126-billion-dollar) fiscal stimulus plan next year along with a buildup in global public debt could also undercut the upswing.

However, the German Ministry of Economics and Technology last week revised up its growth forecasts saying that it now expects the nation to notch up a moderate 1.2-per-cent growth rate in 2010 after contracting by 5 per cent this year.

But some economic forecasters are even more optimistic. The giant German insurer Allianz AG said this month it believe that German economic growth could hit about 2.7 per cent next year. (dpa)