April 5 (Bloomberg) -- Industrial production in Germany, Europe's largest economy, unexpectedly rose for a fourth month in February as manufacturers boosted output of goods such as factory machinery and equipment.

Production increased a seasonally adjusted 0.9 percent from January, when it also rose 0.9 percent, the Economy and Technology Ministry in Berlin said today. Economists expected a 0.5 percent decline, according to the median of 39 forecasts in a Bloomberg News survey. In the year, output rose 7.7 percent.

The German economy is showing few signs of cooling from the fastest pace since 2000 last year as companies boost spending and hiring to meet demand. Factory orders increased the most in more than two years in February, and executives, investors and consumers became more optimistic about growth last month.

``German manufacturers are still doing very well,'' said Lutz Karpowitz, an economist at Bayerische Landesbank in Munich, who forecast a 1 percent gain. ``Even if the U.S. economy continues to cool, other regions such as in Asia and Eastern Europe will help counter the impact'' on exports.

The German economy may expand ``a good'' 2 percent this year after growing 2.7 percent in 2006, Bundesbank President Axel Weber forecast March 28. The European Central Bank expects the economy of the 13 euro nations to grow about 2.5 percent this year and around 2.4 percent in 2008.

China, Japan

The U.S. economy, the world's largest, may become a drag on global expansion this year. U.S. manufacturing growth slowed more than forecast last month and orders for durable goods excluding transportation dropped for a second month in February.

Demand in markets outside the U.S. is shoring up the economy. China, the world's fastest-growing economy, may expand 9.6 percent this year after 10.7 percent in 2006, the World Bank said today. East Asia, which excludes Japan and the Indian subcontinent, may grow 7.3 percent this year after expanding 8.1 percent in 2006, the most in a decade, the Washington-based lender said.

Orders for German manufactured goods rose 3.9 percent in February after declining in the previous month, the Economy and Technology Ministry said yesterday. Manufacturing accounts for about a quarter of German gross domestic product.

Output of goods needed to make other products rose 0.7 percent in February from the previous month and production of investment goods increased 1.1 percent, today's report showed. Construction output rose 0.9 percent in February, helped by faster economic growth and ``mild weather,'' the ministry said.

Porsche, HeidelbergCement

The euro traded at $1.3375 at 1:26 p.m. in Frankfurt compared with $1.3368 yesterday. Germany's DAX Index, which measures the performance of the country's 30 largest listed companies including Siemens AG, rose for a sixth day to 7080.49 points.

Porsche AG, the maker of the 911 Carrera sports car, said last month it's ``optimistic'' about the fiscal year after first- half profit rose more than it had forecast. Markets in eastern Europe and Asia ``will contribute a fair bit'' to sales, the Stuttgart, Germany-based company said.

``All signs continue to suggest that an economic recovery in Europe will continue on a broad basis,'' said Bernd Scheifele, chief executive officer at HeidelbergCement AG, Germany's largest maker of building materials, in a March 22 interview. ``Germany is clearly benefiting from booming markets in China and India.''

`Healthy Slowdown'

Companies have increased spending and hiring to meet orders, helping the economy overcome the government's value-added tax increase to 19 percent from 16 percent on Jan. 1. Unemployment dropped to 9.2 percent in March, the lowest since May 2001.

Output of consumer goods rose 0.4 percent in February from the previous month, when it dropped 2.2 percent, today's report showed. Gains were led by demand for durable consumer goods.

``The comparatively soft VAT impact took everyone by surprise,'' said Rainer Guntermann, an economist at Dresdner Kleinwort in Frankfurt. ``The German economy will weaken slightly this year, but it's more of a healthy slowdown toward a more sustainable growth path.''

The ECB has signaled it's ready to raise interest rates further if needed to keep stronger growth from pushing up inflation. ECB council member Nout Wellink said today in the annual report of the Dutch central bank that the euro-region economy ``is at full steam'' with the key rate still below a 2001 peak after seven increases to 3.75 percent since late 2005.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

Last Updated: April 5, 2007 08:58 EDT