German analyst and investor sentiment leapt to its highest level since April 2011 in February, smashing expectations and sending the euro to a session high, in a sign that Europe's bulwark economy is picking up pace again.

The Mannheim-based ZEW economic think tank's monthly poll of economic sentiment jumped for the third month in a row, rising to 5.4 from -21.6 in January. This was the first time the index turned positive since May, and compared with a consensus forecast in a Reuters poll of analysts for a gain to -12.0.

"The economic weakness at the turn of the year is starting to look more and more like it was just a mere dent," said Rainer Sartoris at HSBC Trinkaus. "The economy is stabilising."

The ZEW data sent the euro to a session high against the dollar and German Bund futures to a session low.

A separate ZEW gauge of current conditions rose to 40.3 from 28.4, also beating the consensus forecast for a rise to 30.0.

Germany's export-driven economy recovered quickly from the 2008/09 financial crisis, but began to feel the pinch late last year as the debt crisis spread from Greece to its key trading partners in the euro zone and weighed on the real economy.

Official data due tomorrow is expected to show the economy contracted 0.3 per cent in the fourth quarter of 2011.

However, forward-looking surveys, such as ZEW's, show that the economy likely picked up again at the beginning of 2012, avoiding a recession.

The ZEW survey underlined the growing divergence between Germany's robust economy and the ailing euro zone periphery.

Data today showed Portugal's recession deepening, with gross domestic product shrinking 1.3 per cent in the fourth quarter of 2011.

"We are quite confident that the economy is picking up again in the first half of this year," said Marcus Kappler, economist at ZEW. "The recession probability is very low."

"We got some very positive news from the US. That's stimulating of course. On the political side, I think the overall picture is that the crisis in the euro zone now looks less scary than three months ago.”

Business sentiment rose for the third month in a row in January, a key survey by think tank Ifo recently showed, and market research group GfK said private consumption would rise again this year.

ZEW said it conducted its survey of 284 analysts and investors between January 30th and February 13th.

Reuters