March 11 (Bloomberg) -- Investor confidence in Germany unexpectedly rose for a second month in March, adding to evidence Europe's largest economy is coping with the euro's appreciation and a U.S. slowdown.

The ZEW Center for European Economic Research said its index of investor and analyst expectations rose to minus 32 from minus 39.5 in February. Economists expected it to fall to minus 40, according to the median of 40 forecasts in a Bloomberg News survey. The gauge reached a 15-year low of minus 41.6 in January.

The euro climbed to a record after ZEW reinforced a series of reports showing Germany's expansion is holding up and European Central Bank council member Axel Weber said there's no room to lower interest rates. Business confidence rose for a second month in February, industrial production increased more than expected in January and exports jumped 3.8 percent.

``Germany should come out of this slowdown much better than other euro-area countries,'' said Dominic Bryant, an economist at BNP Paribas in London. ``It won't escape the slowdown, but we are certainly not talking about a recession. Companies have really done their homework in recent years.''

German companies have increased efficiency and reduced labor costs, helping them to remain competitive even after the euro gained 18 percent against the dollar in the past year. The currency added almost a cent after the ZEW report, to close to $1.55.

Mid-Year Improvement?

``Survey respondents expect the economy to recover from September,'' said Sandra Schmidt, a senior economist at ZEW, in a Bloomberg Television interview. ``That means we'll see an improvement from about mid-year.''

Economic resilience in Germany, which accounts for about a third of the economy of the 15 euro nations, gives the ECB room to leave interest rates at a six-year high to fight inflation. By contrast, the U.S. Federal Reserve has reduced borrowing costs five times since September to stave off a recession. The U.S. government has also introduced a $168 billion economic stimulus package to boost consumption.

The U.S. lost jobs in February for the second month, the Labor Department said March 7, adding to evidence that the world's biggest economy is contracting.

The ZEW index ``is forward looking, and there's hope that the U.S. fiscal package and interest-rate cuts will help revive'' the U.S. economy, said Rainer Guntermann, an economist at Dresdner Kleinwort in Frankfurt.

Credit Losses

Rising U.S. mortgage defaults pushed up borrowing costs globally last year, threatening investment and causing about $188 billion in asset writedowns and credit losses so far at the world's biggest banks and securities firms.

The Fed said today it plans to lend up to $200 billion of Treasury securities in exchange for debt including private mortgage-backed securities that have slumped in value as homeowners defaulted on their payments. The ECB and other central banks said they will cooperate with the Fed to increase dollar liquidity in their economies.

``What started as a credit crisis in the U.S. will spread to the real economy in Europe soon,'' said Holger Schmieding, chief European economist at Bank of America in London.

Lower U.S. interest rates relative to Europe have helped drive the euro to a record against the dollar, threatening to curb European exports. At the same time, surging oil prices are pushing up energy bills. Crude oil rose above $109 a barrel for the first time today and is 85 percent more expensive than it was a year ago.

Shares Drop

Germany's benchmark DAX share index has dropped 18 percent this year, the biggest decline among major European stock markets, on concern that a possible U.S. recession will spread to Europe and hurt company profits.

Heidelberger Druckmaschinen AG, the world's largest maker of printing machines, last month cut its annual profit forecast after a drop in third-quarter earnings. The company said a weaker dollar hurt margins and some U.S. publishers are holding back investment because they are worried about a recession.

The International Monetary Fund said Feb. 27 that the U.S. slowdown and ``weaker'' world trade will curb Germany's expansion. The economy may grow 1.5 percent this year after 2.5 percent in 2007, the Washington-based fund said.

To contact the reporter on this story: Gabi Thesing in Frankfurt gthesing@bloomberg.net

Last Updated: March 11, 2008 10:30 EDT