Germany's key Ifo business climate index on Tuesday jumped to an 11-month high in March, reflecting confidence that Europe's biggest economy was recovering from a mild recession.

The Ifo economic institute said its business climate index climbed for the fifth month in a row to 91.8 from a revised 88.5 in February - well above the consensus forecast for a rise to 90.3.

"The Ifo was very strong and it's almost back at peak levels now. It suggests the rally in industrial production is going to be sooner and more aggressive than originally thought," said Sharon Coombs, a European strategist at HSBC.

The signs of recovery come just six months ahead of what will be closely-fought general elections on September 22.

For Schröder it is good news at the end of a bad week. The scandal over donations to local SPD branches mushroomed and Philipp Holzmann AG, the building firm whose 1999 rescue Schroeder championed, has now gone bankrupt, becoming Germany's biggest corporate failure.

On Friday, Schröder did manage to score a political win as his SPD squeezed a landmark immigration bill through the upper house of parliament, although it may yet prove to be short-sighted as enraged conservatives promise to keep the emotive issue alive until the September 22 election.

And Schröder will need little reminding that the economy is still the leading issue among voters.

Dealers are still cautious after seeing the euro fall despite good figures in the past. No longer greatly impressed by positive expectations, they want to see concrete figures reflecting actual conditions.

And the prospect that the economy may be coming round in itself may not be enough to turn around public opinion at the end of a week of scandal and bankruptcy.

Six months before the general election, Schröder's Social Democrats are trailing the conservative opposition by four to five percentage points.