The GfK Institute index estimate for July rose to 2.9 points from a readjusted 2.6 points in June, the pollster said in a statement.

Analysts had predicted the July index would stand at around 2.5 points. GfK said the survey results indicated that consumers' economic and income expectations were on the increase and the propensity to buy was also improving slightly.

"Following the recent growing number of signs that the economic downturn may be coming to an end, consumer hopes of economic stabilization are intensifying and accordingly, economic expectations are increasing moderately," the statement said.

"The fact that the employment market has remained fairly robust is likely to be one reason for this. However, the consumer climate remains at a low level overall."

GfK canvassed around 2,000 consumers for the survey, which measures overall sentiment with subsections covering personal income expectations, general views of the economy and the likelihood of making large purchases.

The institute said German government efforts to safeguard jobs have kept the market unusually flexible despite the economic downturn, and that consumers were spending their money on purchases rather than investments.

Another key economic index, released Monday, showed that German business confidence rose for a third straight month in June, making larger than expected gains to 85.9 points, following a lower than expected rise in May to 84.2 points.

The Ifo business index, released by the Institute for Economic Research in Munich, is seen as a major indicator of the economic mood in Europe.

dfm/AFP/AP
Editor: Trinity Hartman