Europe's economy faltered while the German economy ground to a halt in the last quarter of 2005, according to data released yesterday. But signs have emerged of a rebound in confidence among German investors.

Preliminary estimates by Eurostat, the EU statistical agency, show gross domestic product (GDP) - the level of goods and services produced in the economy - grew by just 0.3 per cent in the final quarter of last year.

Germany's economy failed to spark over the same period and grew in the final quarter by just 1 per cent.

Estimates for euro-zone and German growth will be revised next week ahead of a meeting of the European Central Bank (ECB) in the first week of March.

The ECB will take account of the state of the euro zone economy in determining whether to raise interest rates.

However, the gloomy outlook for Europe's largest economy - which makes up almost one-third of euro-zone GDP - was defied by two surveys published yesterday.

A survey by Germany's chamber of industry and commerce shows investor confidence reaching an 11-year high in February.

A closely watched index published by a leading German economics institute Zew showed optimism among financial market analysts stabilising at high levels.

"The investment climate in Germany remains positive," said Zew economist Matthias Koehler.

Recent prices of euribor futures contracts - short-term lending instruments traded on financial exchanges - imply that financial markets expect rates to rise by one-quarter of a percentage point by April.

Yesterday's economic data may be used as an argument by more dovish members of the council in favour of stalling increases until April.

But participants at this week's meeting of euro zone finance ministers remained optimistic about Europe's economic prospects.

Luxembourg prime minister Jean-Claude Juncker, who chaired the meeting, had said on Monday that in his view market expectations would be fulfilled.

New Federal Reserve chairman Ben Bernanke is expected to indicate in testimony to US congress this week that he sees room for further rate rises in the US.