Eurozone economies

For the third time in a row the Munich-based Ifo Institute's indicator for the eurozone states rose, indicating that European economies may be on the road to recovery.

Growth expectations for the coming six months have improved for all countries that have adopted the euro, according to a statement released on the institute's Web site by Ifo president Hans-Werner Sinn.

Ifo's conclusion is based upon a poll of 265 economic experts, who warned that though growth is returning, current business conditions are still "quite unfavorable."

"The economic expectations are especially optimistic in Italy, Germany and the Netherlands," wrote Sinn, one of Germany's best-known economists, who added that some caution was still needed for Spain and Greece.

The economists expected Ireland to be the only eurozone country where the economy worsened further in the next six months.

Dollar and pound to stay weak

Those surveyed believed inflation was likely to rise from the 0.7 percent average expected for 2009, with key interest rates rising to dampen inflationary pressures.

Both the US dollar and British pound are expected to remain weak over the next six months, even though the economists believed the currencies to be "clearly undervalued."

The dollar hit a 15-month low Wednesday, trading at $1.5029 to the euro while gold set a new record high above $1,115 an ounce.

European markets rally

The Ifo report's conclusions were backed by strong earnings data from across Germany and Europe on Wednesday.

Italy's Unicredit, the biggest lender in central and eastern Europe, posted a fall in third-quarter net profit, but beat analysts' forecast with the help of a surge in trading income. The Dutch financial services giant ING, meanwhile, posted a third-quarter that was in line with pre-announced results.

"There are signs of gradual economic revival coupled with low levels of inflation. It is just a favourable environment for risky assets and risk taking," said Jeremy Batstone-Carr, head of research at Charles Stanley.

European stocks markets rallied Wednesday, with London's FTSE index hitting a 2009 high of 5,300.98 points, a 1.22 percent rise from Tuesday, after the Bank of England said the strength of Britain's economic recovery was "highly uncertain." Traders interpreted the bank's message to mean that interest rates will likely stay very low for some time.

Frankfurt's DAX 30 soared 1.40 percent to 5,691.70 points as several German companies reported strong results.

Duesseldorf-based energy provider E.ON, Germany's largest by market value, raised its full-year outlook after its third quarter results rose more than expected. The media concern Axel Springer Verlag said profits were set to rise 10 percent, while the Bertelsmann media group reported an earnings rise of 14 percent.

Reporter: bn/Reuters/dpa/AP
Editor: Matt Hermann