Berlin  - An unexpected rise in a key German business confidence index boosted shares in Frankfurt and the euro Wednesday.

The Munich-based Ifo institute reported a rise in its May business climate index to 103.5 points from 102.4 points in April, contrary to market expectations of a slight fall.

The DAX 30 index of the top shares traded in Frankfurt rose to 7,137 at noon, up 0.3 per cent on the opening, and the euro rose some 0.5 per cent to above 1.57 to the dollar.

Ifo President Hans-Werner Sinn said the 7,000 company executives surveyed assessed the current situation "more positively" than a month ago, when the index fell sharply.

"With regard to the outlook for the coming six months, they are also somewhat more confident. On the whole, the dampening of economic activity in Germany in the months following the very good first quarter should be moderate," Sinn said.

The rise in the index, coupled with the knock-on effects on shares and the euro, put paid to any remaining hopes of an interest rate cut when the Governing Council of the European Central Bank (ECB) meets on June 5.

Sinn said sentiment in the manufacturing sector had improved, both with regard to the current position and predictions for the six months ahead.

Exporters remained optimistic, although executives were less positive than previously, he said.

Sentiment in the construction sector was little changed, while executives in the wholesale and retail sectors were somewhat more optimistic than at the April survey.

On Tuesday, the key German ZEW investor confidence index fell slightly on inflation concerns.

German annual consumer inflation came in at 2.6 per cent in April, after surging to a 12-year high of 3.3 per cent in March. The official target set by the ECB for the eurozone is just under 2 per cent.

Last week, the statistics office said German gross domestic product (GDP) had risen unexpectedly sharply in the first quarter.

German GDP grew 1.5 per cent in the first three months of 2008 compared to the last three months of 2007, the highest increase in 12 years and well above expectations. (dpa)