July 29 (Bloomberg) -- Germany's DAX Index climbed for a 13th session and headed for its biggest monthly rally since October 2003. Volkswagen AG, Europe's largest carmaker, paced gains after reporting higher second-quarter operating profit.

The DAX rose 15.08, or 0.3 percent, to 4907.58 as of 11:59 a.m. in Frankfurt, taking the advance this week to 1.2 percent. The HDAX Index, consisting of the country's 110 biggest companies, added 0.3 percent.

The DAX last increased for 13 days in a row in February 1997. The benchmark has added 5.2 percent since July 13 and is up 6.7 percent this month.

``People had been underestimating the German market and that partly explains this nice rally,'' said Mike Bayer, a fund manager at Ceros Vermoegensverwaltung, which manages $340 million in Frankfurt. ``There's a big possibility that this trend will go on.''

Optimism that a change in government in Europe's largest economy may bolster growth and speed up pro-business labor and fiscal policies has helped lift German equities. The DAX, which underperformed the Dow Jones Stoxx 600 Index in four of the past five years, has beaten the European measure since German Chancellor Gerhard Schroeder on May 22 called for early elections.

The German index is up 13 percent since that day, while the Stoxx 600 has gained 8.5 percent.

Volkswagen added 1.7 percent to 44.52 euros. Second-quarter operating profit rose 75 percent to 911 million euros ($1.10 billion) from 522 million euros, beating the 676 million-euro median estimate of 10 analysts surveyed by Bloomberg News.

Schroeder's Popularity

Schroeder has lost popularity since easing restrictions on company firings and becoming the first postwar German leader to cut jobless benefits. On May 22 his party lost an election in North Rhine Westphalia state after 39 years in power.

The opposition Christian Democratic Union unveiled a manifesto on July 11 for reductions in payroll charges. The plan also called for the main corporate-tax rate to drop to 22 percent from 25 percent. Angela Merkel is the CDU candidate.

The main opposition parties have a lead of 1 percentage point seven weeks before the national election on Sept. 18, a poll for ARD television conducted this week found.

Among other gainers today, Linde AG, a maker of industrial gases and forklifts, rose 1 percent to 58.93 euros. The company, based in Wiesbaden, said salary cuts and longer working hours at its forklift-truck unit will help increase earnings by ``tens of millions'' of euros each year.

The company said it reached agreement with employees after guaranteeing that existing factories will stay open and jobs won't move Eastern Europe for six years.

The following stocks also had gains or losses in Frankfurt. Stock symbols are in parentheses after the companies' names:

DaimlerChrysler AG (DCX GY), the carmaker that yesterday said Chief Executive Officer Juergen Schrempp will step down this year, rose 32 cents, or 0.8 percent, to 39.81 euros, extending yesterday's 8.7 percent surge.

Brokerages such as Lehman Brothers Holdings AG and WestLB AG upgraded recommendations on the stock following the appointment of Dieter Zetsche, head of the company's Chrysler unit, to replace Schrempp.

Puma AG (PUM GY), Europe's second-largest sporting-goods maker, fell 4.07 euros, or 1.9 percent, to 208.58, an eighth decline. Analysts at Commerzbank AG cut their recommendation on the stock to ``hold'' from ``buy,'' saying that planned investments will reduce profitability. Puma said on July 27 that it plans to invest in segments such as soccer and golf and may buy rivals to tap some 3.5 billion euros ($4.2 billion) in sales potential in the next five years.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

Last Updated: July 29, 2005 06:00 EDT