April 25 (Bloomberg) -- German business confidence unexpectedly climbed to a 15-year high in April as growth in Europe's largest economy accelerated, prompting investors to increase bets on higher interest rates.

The Ifo institute's confidence index, based on a survey of 7,000 executives, rose to 105.9, the highest since April 1991, from 105.4 in March. Economists expected a decline to 104.8, the median of 41 estimates in a Bloomberg News survey showed.

``It's a very encouraging number for a business recovery in the euro region,'' said David Brown, chief European economist at Bear Stearns International in London. It gives the European Central Bank more reason ``to take rates higher sooner rather than later.''

German economic growth has gained momentum as exports increased, fueling industrial production and company investment. Ifo's gain shows executives are confident the economy can weather a surge in crude oil prices, which reached a record $75.35 in New York last week.

With economic growth in the 12 euro nations rebounding from last year's slowdown and oil prices stoking inflation, the ECB has signaled it may raise interest rates for the third time in six months in June.

ECB council member Yves Mersch in an interview in Luxembourg yesterday wouldn't rule out the bank would revise up its inflation forecasts following higher energy costs. His German counterpart, Axel Weber, told reporters in Berlin today that price risks ``have to be countered in an appropriate way.''

Higher Interest Rates?

In Germany, inflation accelerated in April on higher energy costs, figures from four states showed today. Economists expect consumer prices to rise 1.9 percent this month from a year earlier after gaining 1.8 percent in March, a Bloomberg News survey showed. The ECB said March 2 inflation would average 2.2 percent this year, exceeding its 2 percent limit for a seventh year.

Futures traders raised bets the ECB will increase the benchmark refinancing rate to 3.25 percent this year, from the current 2.5 percent. The yield on euro three-month interest-rate futures maturing in December rose 5 basis points to 3.47 percent.

The contracts settle to the three-month euro interbank offered rate that has averaged about 15 basis points over the ECB rate since the euro's start in 1999.

The yield on the German 10-year bund rose 4 basis points to 3.98 percent at 12:32 p.m. in London, the biggest gain since April 13. A basis point is 0.01 percentage point.

Global Growth

The world economy continues to exceed expectations in the face of high oil prices, the International Monetary Fund said April 19. Gross domestic product will rise 4.9 percent this year, the Washington-based lender said in its semi-annual World Economic Outlook, 0.6 of a point more than it predicted in September.

SGL Carbon AG, the world's largest maker of carbon and graphite products, today reported a higher-than-expected first- quarter profit, spurred by cost cuts and higher demand. The Wiesbaden, Germany-based company reiterated expectations of rising full-year earnings.

``The European economy is benefiting from the strong world economy,'' Mersch said. ``We have also seen developments in investment and developments in the labor market which, over time, will not fail to influence consumption behavior.''

Global expansion means export-oriented companies in Europe have more money to invest at home. Manufacturing and services in the euro region expanded at the fastest pace in about five years in March. In France, executives were the most optimistic in more than five years in April, a government report showed yesterday.

Investing at Home

SAP AG, the world's largest maker of business-management software, plans to hire about 3,500 workers this year on rising orders from customers including Honeywell International Inc. The Walldorf, Germany-based company said April 20 that U.S. software sales increased 25 percent in the first quarter, more than three times more than revenue in its home market.

``We've seen continuing growth in orders during the first months of this year,'' said Hans-Peter Keitel, chief executive officer of Hochtief AG, Germany's biggest builder. ``It would be an important step and a good omen for the coming years if we pass through the trough this year.''

Ifo's construction confidence sub-index rose to minus 13.9 in April from minus 17.6 in March.

A 22 percent increase in oil prices this year may hamper growth by pushing up inflation and eroding consumers' purchasing power. Crude oil traded at $73.65 per barrel today.

`Over The Top'

``The Ifo's level is clearly over the top,'' said Ralph Solveen, economist at Commerzbank in Frankfurt. ``We'll see a normalization in coming months. The industrial sector is performing well, but I don't know where the confidence in the retail and construction sectors is coming from.''

German retail sales fell in March, according to the Bloomberg purchasing managers index, and investor confidence unexpectedly dropped for a third month in April, the ZEW Center for European Economic Research said April 11. ZEW says its index is a leading indicator for Ifo.

Euro-region growth will probably lag behind an expansion in the U.S. economy, the world's largest, for the fifth straight year in 2006. The IMF's 2 percent growth forecast for the euro region compares with a projection of 3.4 percent for the U.S. and 2.8 percent for Japan.

The surge in oil prices ``played a role, but so far effects have only slightly damped expectations,'' said Ifo Chief Economist Gernot Nerb in an interview today. ``At the moment, companies consider the situation as rather robust.''

Ifo's gauge of business expectations declined to 105.5 from 105.7, while the measure of current business conditions advanced to 106.4, the highest since October 1991, from 105.1.

The Bundesbank said yesterday that German economic growth is continuing to gain momentum. Industrial production rose for a third month in February and exports increased the most in almost four years, government reports this month showed.

The German economy may expand as much as 2 percent this year, the Berlin-based BDI industry lobby said yesterday, raising its forecast from the 1.8 percent it projected in January. That compares with expansion of 0.9 percent last year. Rising optimism has helped Germany's benchmark DAX 30 stock index increase 13 percent this year.

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

Last Updated: April 25, 2006 09:09 EDT