Rising oil prices and falling stock markets have badly dented investor confidence in Germany, according to a leading German think tank.

Investors' expectations for the future of the euro zone's largest economy suffered their biggest decline for four years in June as investors digested the impact of the latest crisis in the Middle East, the Mannheim-based ZEW economic research institute said yesterday.

One analyst predicted that the chances of future interest rate rises could increase in the longer-term as higher oil prices affected inflation, despite concerns about the impact of higher interest rates on growth.

Compared with a historical average of 35.0, the ZEW index fell to 15.1 in June, the sixth successive monthly decline. The index - which is based on a survey of 293 analysts and institutional investors - has now returned to levels recorded in May of last year. The news prompted the euro to fall to a one-month low against the dollar. The price of oil rose above $76 (€60.7) a barrel yesterday, close to Friday's all time high of $78, and is now 24 per cent higher than at the start of this year.