The survey, conducted by the Nuremberg-based GfK marketing group, showed that consumer confidence is now at its highest level since June 2008, after slumping earlier this year.

The forward-looking index of around 2,000 households rose to 3.4 points for August and GfK has forecast an increase to 3.7 points for September.

Reduced retail prices, a more stable labor market, and increased hope that the worst of the economic crisis could be over are believed to be the main factors for the positive trend.

"Due to stable and even falling prices, consumers are currently left with more in their pockets," the GfK said in a statement. "Currently these developments are apparently displacing possible fears about job security."

Up until now, the German labor market has managed to weather what has been the nation's biggest economic slump in more than 60 years with only a rather modest rise in unemployment. This, in turn, has also helped to buoy the mood among consumers.

However, the GfK group also warned that unemployment could still be a threat to consumer spending.

"Whether this upward trend will persist depends on the extent to which the labor market declines in the course of the year," the GfK said. A sharp increase in unemployment would surely also depress the consumer climate."

Indeed, many economists are predicting a sharp rise in the numbers of people out of work in Germany in the months ahead as the global recession starts to catch up with the nation's labor market.

The GfK also pointed out that, on a long-term comparison, the consumer climate continues to remain at a relatively low level. In the meantime, the GfK index's gauges measuring higher income expectations and consumers' willingness to buy both chalked up further rises in the latest survey.

The data on consumer confidence was released a day after a survey showed that business confidence had also risen for five straight months. That news was considered further evidence that Europe's biggest economy has overcome the worst of the financial crisis.

Last month, the German economy posted surprise growth of 0.3 percent, signaling it had officially emerged from recession.

nda/ca/dpa/AP/AFP

Editor: Chuck Penfold