Germany's key Ifo business climate index rose unexpectedly to 89.8 in July.
It bounced back from a five-year low of 89.5 set the previous month as the business outlook brightened in news that sent the euro bounding.
The index, published by the Ifo economic institute today, was higher than even the highest forecast in a survey of economists for 89.0 and was significantly better than a market consensus for a decline to 88.6.
Hopes this could signal a pick-up in weak conditions in German industry saw the euro to move to over $0.92 against the dollar from $0.9140 before the data was released.
The surprise jump in the index, the first rise since January, was a rare bit of good news for German industry, which has been stagnating for months. But analysts warned they needed to see more evidence before declaring the slowdown over.
The Ifo data follows reports the German economy may not have grown at all in the second quarter, with the Italian economy, the euro zone's third-largest, actually shrinking slightly in the same period.
The ongoing slowdown in growth in key euro zone economies, combined with falling inflation rates, have increased expectations the European Central Bank (ECB) will soon follow the US Federal Reserve's example by cutting interest rates.
The ECB's policy-making council is due to meet on August 30th. The bank has held its main refinancing rate steady at 4.5 per cent since its May 10th quarter-point cut.