The feeling is that things are on the up and up for German companies

The sentiment index by research firm Ifo - a key indicator of the state of Europe's biggest economy - climbed to 96 from 94.6 in August.

Economists had forecast that businesses would be feeling more pessimistic.

Ifo said the majority of firms had been polled before the elections and warned that there could be a drop next month.

'Back foot'

David Brown, chief European economist at Bear Stearns, said there was a risk that September's gain would not be repeated in coming months, especially as crude oil and fuel prices were staying subbornly high.

"German business confidence is on the back foot again, with increased political uncertainty on the rise and sentiment still being hounded by high oil prices," Mr Brown explained.

"The bottom line for German growth this year is that recovery momentum is flagging."

Germany is still trying to form a government after both main parties claimed the right to lead the nation following the inconclusive election.