Portugal Colonial - Mideast war peace deal boosts German investor morale

The ZEW institute's economic expectations index rose 20.7 points from negative territory in May to reach 10.5.

Analysts surveyed by the financial data firm FactSet had expected the index to rise less sharply and remain in negative territory.

"Financial market experts expect the Iran conflict to be nearing an end," said the institute's president, Achim Wambach.

"This is likely to ease the massive pressure on energy prices and inflation, which would benefit energy-intensive industries and private households and would strengthen domestic demand."

The turmoil triggered by the war, which began in late February with US and Israeli strikes on Iran, dealt another blow to Germany, which was already struggling to recover from a long decline.

The economy had been set for a rebound this year on the back of hefty government spending, but forecasts have been dialled back due to the conflict.

With Tehran and Washington now having agreed a deal, which is due to be signed Friday in Switzerland, hopes are growing that the outlook will brighten.

Ships have started moving through the Strait of Hormuz, one of the world's most important energy chokepoints, which was almost totally closed by the war.

According to the ZEW survey, expectations improved sharply in Germany's auto sector as well as in the chemical and pharmaceutical industries.

But the index still remains far lower than before the war, when it stood at around 60 points.

A total of 190 analysts and institutional investors participated in the survey, which was conducted from June 8 to 15.

V.Dantas--PC