May 23 (Bloomberg) -- German stocks rose after Chancellor Gerhard Schroeder said he'll seek early elections, fueling speculation his government will be ousted later this year, avoiding a year of political stalemate.

The DAX Index added 38.09, or 0.9 percent, to 4398.77 as of 11:24 a.m. in Frankfurt. E.ON AG and RWE AG, Europe's second- and third-largest utilities, respectively, led gains. The HDAX Index of the country's 110 biggest companies climbed 0.8 percent.

Stocks were lifted as Schroeder yesterday announced plans to hold a national election later this year after his Social Democrats party was ousted from power in North Rhine-Westphalia by the Christian Democrats, ending its 39-year rule. The opposition CDU, which supports industries such as nuclear energy, would win an election if it were held now, according to a poll of 675 voters conducted for WDR television.

``Investors are looking at this as a positive,'' said Neil Dwane, who oversees $65 billion, including shares of Deutsche Bank AG, as chief investment officer for Europe at Allianz Dresdner Global Investors in Frankfurt. ``The CDU is seen as more pro business.''

E.ON rose 2.6 percent to 68.99 euros. RWE added 1.9 percent to 48.05 euros. Optimism they would be allowed to operate their nuclear power plants for longer after a change of government boosted the shares, analysts said.

``Any CDU-led government would extend the lifespan of RWE's and E.ON's nuclear power stations,'' said WestLB analyst Peter Wirtz by phone. ``The nuclear power stations are the company's most profitable power plants.'' The bank rates both companies ``outperform.''

`Excellent News'

The 3.4 percent gain for the DAX this year is less than the 4.9 percent increase for the Dow Jones Stoxx 50 Index, a European equity benchmark. The DAX rose 7.3 percent in 2004, beating the 4.3 percent increase by the Stoxx 50.

``It's absolutely excellent news,'' said Nigel Bolton, who oversees $9.6 billion as head of investment at Scottish Widows Investment Partnership in Edinburgh, Scotland. It's positive ``for the restructuring we need within Germany.'' He said utilities such as E.ON and RWE may benefit the most.

Business confidence probably held near a 19-month low in May and investor optimism was little changed as Europe's economic outlook deteriorated, surveys of economists showed.

The Ifo institute in Munich may say on May 25 its confidence index was little changed at 93.4, the median of 43 estimates in a Bloomberg survey showed. A day earlier, the ZEW Center for European Economic Research will probably say its index of institutional investor and analyst sentiment rose to 21 from 20.1, a separate survey showed.

Slowest Growing Economy

Germany's economy is forecast by the European Commission to be the slowest-growing in the 25-nation European Union this year.

Support for Schroeder, 61, has slumped amid a stagnating economy and rising unemployment -- the number of people out of work has risen by 1 million to close to 5 million since he took office in 1998. The unemployment rate is 11.8 percent, near a record.

``The market is likely to welcome Schroeder's decision,'' Dieter Bohlens, an equity strategist at HSH Nordbank AG in Hamburg, said before the market opened. ``We could make some kind of headway in the economic front, which is the most important thing right now for Germany.''

ThyssenKrupp AG, Germany's largest steelmaker, added 1 percent to 14.51 euros. Siemens AG, the country's biggest engineering company 0.8 percent to 59.20 euros.

``It will be positive for construction, consumption, on the domestic economy,'' said Dieter Winet, a fund manager at Swisscanto in Zurich, which manages about $42 billion in assets. ``There will be hope and that alone will have a positive effect'' on stocks.

Fresenius Medical Care AG, the world's biggest provider of kidney dialysis, rose 1.2 percent to 65.06 euros. Its parent company, Fresenius AG, expects to reach its $10 billion sales target in 2008, two years earlier than planned, said Chief Executive Ulf Schneider in an interview with Frankfurter Allgemeine Zeitung on Saturday.

To contact the reporter on this story: Chris Fournier in Frankfurt at Cfournier3@bloomberg.net.

Last Updated: May 23, 2005 05:42 EDT