May 23 (Bloomberg) -- German stocks rose after Chancellor Gerhard Schroeder said he'll seek early elections, spurring optimism his government will be replaced by one favoring industries such as nuclear energy. RWE AG and E.ON AG led gains.

The DAX Index added 42.35, or 1 percent, to 4403.03 as of 2:05 p.m. in Frankfurt, the highest in more than five weeks. All but six of its 30 members advanced. The HDAX Index of the country's 110 biggest companies climbed 0.9 percent.

The opposition Christian Democrats would probably win an election this year, opinion polls show. That would give the party control of both houses of parliament, facilitating the passage of laws to cut taxes or ease labor restrictions. The CDU and businesses support nuclear power as energy costs rise and European rules limit emissions of carbon dioxide.

``The CDU is seen as more pro business,'' 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. ``Investors are looking at this as a positive.''

E.ON, the world's largest publicly traded electric utility, rose 3.5 percent to 69.60 euros. RWE, Europe's third-biggest utility, added 2.7 percent to 48.43 euros. Optimism they would be allowed to operate their nuclear power plants for a longer time 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 Peter Wirtz, a WestLB analyst. ``The nuclear power stations are the companies' most profitable power plants.'' The bank rates both stocks ``outperform.''

`Excellent News'

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 CDU, ending its 39-year rule. The CDU would win an election if it were held now, according to a poll of 675 voters conducted for WDR television.

The 3.3 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.

The German benchmark may rise 10 percent to 4800 in six to 12 months on optimism the economy will get a boost from the election of a new government, Tammo Greetfeld, a strategist at HVB Group in Munich, wrote in a report today. The forecast represents the highest level for the DAX since May 31, 2002.

The planned election is ``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

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

The Ifo institute in Munich may say on May 25 its confidence index was little changed at 93.4, based on the median of 43 estimates in a Bloomberg survey. 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 almost 5 million since he took office in 1998. The unemployment rate is 11.8 percent, near a record.

ThyssenKrupp, Siemens

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

ThyssenKrupp AG, Germany's largest steelmaker, added 1.1 percent to 14.52 euros. Siemens AG, the country's biggest engineering company, increased 0.8 percent to 59.21 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.

Shares of Commerzbank AG, Germany's third-biggest bank by assets, slipped 15 cents, or 0.9 percent, to 16.42 euros as they traded ex-dividend, meaning investors who buy the stock today won't have the right to the latest payout of 25 cents.

Solar Shares Drop

Shares of solar-cell makers, including Solarworld AG, fell on concern a new government may modify an energy law passed by Schroeder's coalition that favors solar power.

`` A change in the legislation could have a negative effect on demand for solar products in Germany,'' said Hartmut Moers, an analyst at Sal Oppenheim in Frankfurt who has a ``neutral'' rating on Solarworld shares.

Solarworld slid 11.20 euros, or 9.8 percent, to 102.69 euros. Sunways AG dropped 1.86 euros, or 13 percent, to 12.10 euros. Solon AG fuer Solartechnik declined 3.85 euros, or 12 percent, to 27.50 euros.

The Renewable Energy Sources Act, which took effect in August, requires utilities to pay as much as 57.4 cents a kilowatt- hour for solar power. That's more than 10 times the rate for wind power.

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

Last Updated: May 23, 2005 08:11 EDT