July 19 (Bloomberg) -- Investor confidence in Germany, Europe's largest economy, rose to a 10-month high in July as the euro's decline helped exporters.

A measure of institutional and analyst sentiment rose to 37 from 19.5 in June, the ZEW Center for European Economic Research in Mannheim, Germany, said today. Economists expected an increase to 22, the median of 40 estimates in a Bloomberg survey showed.

The euro's 11 percent depreciation against the dollar this year is supporting exports, cushioning the effect of record energy prices and near-record unemployment. Sales abroad powered German growth in the first quarter, surging 2.9 percent as the economy expanded at the fastest quarterly pace in four years.

The lower exchange rate ``is surely helpful'' and ``could be positive for business confidence in the months ahead,'' said Elwin de Groot, an economist at Fortis Bank Nederland NV in Amsterdam. ``Despite the rise in oil prices, we have some signs that the industrial sector is Europe is gaining some momentum.''

The euro's slide helped lift Germany's benchmark DAX stock index more than 11 percent since the start of May. May factory orders jumped 2.7 percent as the currency's decline made goods cheaper abroad, a report on July 6 showed.

A euro bought $1.2016 this morning, compared with the Dec. 30 record of $1.3666.

`Double-Whammy'

While the euro's depreciation makes German products more attractive to overseas buyers, it magnifies the impact of higher dollar-denominated oil prices at home. Oil, as measured by Brent crude futures, surged to a record $62.10 a barrel on July 7 and was today still 38 percent more expensive than a year earlier, with a barrel costing $57.30 in New York.

German producer prices jumped 4.6 percent in June from a year earlier, driven by oil-based products, the Federal Statistics Office in Wiesbaden said today. Air Berlin GmbH, Europe's third- biggest low-cost airline, warned last month it may have to increase the fuel surcharge on tickets as oil prices threaten to hold back profit and traffic growth.

The euro zone's been hit by a ``double-whammy,'' said James Nixon, an economist at Barclays Capital in London. ``The lower euro is exacerbating the oil price effect. That's why were seeing a noticeably less dovish tone from the ECB.''

European Central Bank Chief Economist Otmar Issing said July 14 the price outlook has ``clearly worsened'' in the past month, indicating the bank is not inclined to cut interest rates to boost economic growth in the 12 nations sharing the euro.

Second Half Revival

The European Commission said yesterday growth in the euro region will rebound in the second half after surging oil prices led to a ``disappointingly slow'' second quarter. It now predicts growth of 1.3 percent this year, down from its 1.6 percent forecast in April.

Higher energy bills and an 11.7 percent unemployment rate are undermining the economy in Germany, where consumption hasn't increased for three years on an annual basis.

The German economy probably stagnated in the second quarter compared with the first three months of the year, the Bundesbank said yesterday. It expects growth of 0.8 percent this year compared with 1.6 percent in 2004.

Chancellor Gerhard Schroeder is seeking early elections in September after voters snubbed his economic policies in a regional election in May. Bundesbank President Axel Weber said June 30 he expects German growth to revive toward the end of the year.

The ECB also expects an economic upturn in the euro region in the second half, rejecting calls for lower interest rates even as it concedes there are no signs yet of a sustainable revival. The ECB set its main rate at 2 percent, a six-decade low, for a 26th month on July 7.

Futures trading suggests investors have trimmed their expectations for lower ECB rates this year. The rate on the December Euribor interest-rate future was at 2.12 percent yesterday, up from 2.02 percent at the start of the month.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's launch in 1999. The Euribor three-month money market rate was 2.12 percent.

To contact the reporter on this story: Matthew Brockett in Frankfurt at mbrockett1@bloomberg.net.

Last Updated: July 19, 2005 05:06 EDT