(Corrects date Schroeder said he'll call early elections in third paragraph.)

May 23 (Bloomberg) -- German stocks rose after Chancellor Gerhard Schroeder, whose party was defeated yesterday in an election in Germany's most populous state, announced he will call elections a year ahead of schedule.

The DAX Index added 45.37, or 1 percent, to 4406.05 as of 9:13 a.m. in Frankfurt. The HDAX Index of the country's 110 biggest companies increased 1 percent. Utilities including RWE AG and E.ON AG were the best-performing shares on the index.

Schroeder said yesterday he'll seek 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. Germany would elect the opposition CDU with a 15.5 percent lead, an Allensbach poll of 2,104 votes published May 18 showed.

``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.''

RWE, Europe's third-largest utility, added 2.1 percent to 48.14 euros. E.ON AG, Europe's second-largest utility, rose 2.4 percent to 68.85 euros.

The 3.5 percent gain for the DAX this year is less than the 5 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.

Sluggish Growth

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.

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.

``What Germany really needs is a change,'' said Matthias Grimm, a fund manager who oversees about $1.3 billion in European equities at Cominvest Asset Management in Frankfurt. ``Maybe new elections could provide the trigger.''

The Allensbach poll showed support for the SPD was 28.6 percent, 9.9 points less than in the 2002 national vote. The poll, carried out from April 23 to May 8, had a margin of error of plus or minus 2 points.

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

Last Updated: May 23, 2005 03:25 EDT