The rise in confidence came from the retail sector

The closely-watched business climate index from the Ifo Institute rose to 104.1 points in February from January's figure of 103.4.

The strength came from the retail sector, with the mood in manufacturing deteriorating slightly.

Ifo regularly asks 7,000 firms about how their business is going and how they expect the next six months to be.

Despite the upbeat mood, analysts are warning that the confidence cannot last long.

"German business confidence is defying logic right now," said David Brown from Bear Stearns.

"The backdrop remains negative set against high oil prices, the strong euro, the credit crunch and continuing signs of slowdown in the German economy."