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German economic sentiment rises, but uncertainty clouds outlook

By Paul Carrel

BERLIN (Reuters) - German business and investor morale both rose in March as buoyant consumer sentiment helped Europe's largest economy ride out concerns of a global slowdown, but experts warned that uncertainty was clouding the outlook.

The Munich-based Ifo economic institute said on Tuesday its business climate index, based on a monthly survey of some 7,000 firms, rose to 106.7 from 105.7 in February. The consensus forecast in a survey by Reuters was for a rise to 106.0.

The ZEW think tank's gauge of analyst and investor morale also rose to 4.3 points from 1.0 in the prior month, but came in below the consensus forecast in a Reuters poll for a reading of 5.0.

"The uncertainty associated with the future economic development of important emerging economies, with the development of the oil price and with the external value of the euro continues to call for caution," said Sascha Steffen, head of research at the ZEW.

"Apparently, the renewed move of the ECB to considerably ease its monetary policy has not had a substantial effect on economic sentiment," Steffen added.

European Central Bank chief Mario Draghi unleashed a bold easing package earlier this month, cutting rates and expanding asset buys, but undid the very stimulus he hoped to achieve by suggesting there would be no further cuts.

Ifo economist Klaus Wohlrabe told Reuters that German economic growth this year would probably not be stronger than last year, when the economy expanded by 1.7 percent.

The Ifo survey showed a slight rebound in the index for trade and industry from a fall in February but it remained below January's level.

A separate survey of purchasing managers showed growth in Germany's private sector was steady in March, helped by a solid upturn in the services industry that made up for a slowdown among manufacturers suffering from weak foreign demand.

Nervousness among buyers of German goods around the world is forcing some of the nation's small- and mid-sized manufacturers to postpone investments and threatening to stunt economic growth.

In January, Germany lowered its growth forecast for 2016 to 1.7 percent - the same rate as last year - as an emerging market slowdown dampened exports.

With the traditional export motor slowing, the domestic economy is taking over as the main driver of growth. Reflecting the buoyant consumer mood in Germany, an Ifo index on retailing jumped to 10.8 from 4.4 in February.

"The days of German penny pinching are behind us," said UniCredit economist Andreas Rees.

(Writing by Paul Carrel; Editing by Madeline Chambers and Tom Heneghan)