Germany's Ifo business climate index rose to 88.9 in February from 87.4 in January - strongly ahead of expectations.
"For Germany overall, the signs are pointing to a change for the better," Ifo President Mr Hans-Werner Sinn said in a statement accompanying the data.
However, he said the west German index need to show three successive rises to give a true picture. February's rise was the second increase in a row.
The euro climbed to the day's highs against the dollar after the data and was trading at $1.0820 from about $1.0800 shortly before the data was released.
The headline west German climate index exceeds economists' average forecasts for a fall to 87.2. Forecasts ranged between and 87.8.
The Munich-based Ifo reported an improvement in both current conditions, to 79.6 from 77.1, and expectations, to 98.4 from 98.1.
"Overall, this is a positive surprise. Expectations have risen three times in a row now," said Mr Ralph Solveen at Commerzbank.