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UPDATE 2-German investor morale picks up but still downbeat

Published 11/11/2008, 06:49 AM

(Adds fresh economist comment)

By David Milliken

MANNHEIM, Germany, Nov 11 (Reuters) - German analyst and investor sentiment improved in November thanks to government steps to shield banks and boost the economy, but morale remains downbeat in the face of recession, a survey showed on Tuesday.

ZEW research institute said its sentiment indicator rose to -53.5 in November from -63.0 in October, buoyed by a 500 billion euro ($636.9 billion) bank rescue package and stimulus programme. A Reuters poll of economists had pointed to a reading of -62.0.

The euro briefly jumped against the dollar after the release of the indicator, which reflects the difference between the share of analysts and investors who are optimistic and those who are pessimistic.

"The passage of the far-reaching rescue packages has apparently helped to reduce the level of pessimism among the ZEW survey respondents," said UniCredit economist Alexander Koch. "However, this doesn't mark the end of the financial crisis and a turnaround in the growth outlook."

A government official told Reuters late last month that the economy probably contracted 0.25 percent in the third quarter, which would spell a recession. Official third-quarter gross domestic product (GDP) figures are due on Thursday.

"We have a sort of sentiment recession which will be followed by the real economy," said Claudia Windt at investment house Helaba.

FUTURE UNCERTAIN

ZEW conducted the survey from Oct. 27 to Nov. 10, giving most of the 287 surveyed analysts and investors time to see details of the German government's economic stimulus package, which the cabinet approved on Nov. 5.

A separate ZEW gauge of analysts' assessment of current conditions fell to -50.4 in November from -35.9 the previous month. The consensus forecast in the Reuters poll was for -45.0.

The outlook for morale was uncertain despite the improvement in the headline sentiment measure, ZEW said.

"We are very uncertain about the future development of the indicator. I don't think this is a turning point," said Peter Westerheide, deputy head of ZEW's international finance department. "I would not expect a drastic improvement in expectations."

The ZEW sentiment reading followed a run of weak data on the German economy. Industrial production posted its biggest drop in nearly 14 years in September, when manufacturing orders fell more sharply than at any time since reunification in 1990.

In a sign of how even flagship companies are suffering, carmaker Daimler said last month it would shut two big German plants for a month due to a sharp drop in demand.

Auto parts maker Robert Bosch GmbH said last week it would shorten the working week for 3,500 workers at a plant in Germany for six months.

Jennifer McKeown at Capital Economics said ZEW's measure of sentiment about the economic outlook pointed to weakness.

"The fact that the index remains deeply negative shows that far more investors expect the German economy to weaken further over the next six months than think that conditions will improve," she said. (Additional reporting by Noah Barkin, Madeline Chambers, and Josie Cox) (Writing by Paul Carrel; editing by David Stamp)

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