German business confidence rebounded unexpectedly in February, according to a leading business index, giving a glimmer of hope that the country's depressed economy might be turning a corner.

The Ifo index of west German business rose to 88.9 in February from 87.4 last month, a sizeable jump made all the more impressive considering the time of year and the conservative predictions from economists.

In eastern Germany, the index rose from 97.5 to 101.9 points.

"For Germany overall, the signs are growing for a change for the better," said Mr Hans-Werner Sinn, president of the Munich-based Ifo institute yesterday.

"However for a clear prognosis, the indicator must also improve in western Germany for three consecutive months. Much will depend on the results of the March survey."

The surprise good news did little to help German equity markets, as fears over Iraq and poor corporate results drove the DAX in Frankfurt down to its lowest level in more than six years.

The Ifo index is compiled from surveys of 7,000 company managers, asking them to rate the outlook of orders and investment for the next six months.

The managers surveyed in February were more optimistic in the short term than the medium term.

Their assessment of current conditions rose from 77.1 points to 79.6 while the expectations index for the next six months barely changed, from 98.1 last month to 98.4.

The surprise upswing in February was thanks to growing optimism among managers in the retail, wholesale and industry, according to Ifo.

Any hint of an economic upturn will be welcome news for the German government.

The economy grew just 0.2 per cent last year and debt soared to 3.7 per cent of gross domestic product.