By Brian Love
PARIS, Jan 27 (Reuters) - An unexpected improvement in German business confidence in January is but one of several positive surprises, but economists still believe it is too early to say the European economy has hit bottomm.
Marginal as it was, the rise in Germany's attention-grabbing Ifo index of business morale was the first in eight months and it came days after an unexpected improvement in investor morale in Europe's biggest economy, as measured by the ZEW index.
"It's almost too good to be true," said Holger Schmieding, chief Europe economist at Bank of America in London.
The index produced by the Ifo research institute, which is based on regular soundings of some 7,000 companies, would need to improve for three months running before people stand up and really take notice, said Schmieding.
Some were more upbeat. "Today's Ifo index shows that the aggressive German fiscal answer to the worst recession since World War Two and the ongoing monetary easing have possibly turned on the light at the end of the tunnel," said Carsten Brzeski at ING Financial Markets.
There are some other surprises too, and they are not limited to Europe's largest economy.
Belgium's business sentiment indicator, widely regarded as a bellwether for the health of the broader European economy, rose too in January, contrary to economist forecasts. In France, the euro zone's second-biggest economy, business morale stabilised in January, albeit at a record low but again better than economists were assuming.
In the euro zone's services sector, business expectations for the year ahead have risen for two straight months according to the widely watched PMI surveys of private companies.
While those expectations still reflect a slowdown in business prospects in the year ahead, they also suggest that a bottom in activity was hit in the final quarter of last year.
The snippets of not-so-awful news on confidence ratings go beyond the business sector too.
A survey of consumers in 13 European countries suggests that confidence hit a low in 2008 when oil prices were heading for the peak reached in July and that if anything might improve this year because oil, and thus fuel bills, have since retreated.
That survey, conducted in December for the French consumer credit company Cetelem, involved soundings from 10,000 people and showed a small drop in the percentage of people who expect to raise their spending this year.
Again it was more a story of things perhaps not being quite as bad as many feared in the euro zone, where 2009 is forecast to be the first year since monetary union that the economic output of the entire zone will actually shrink.
Indeed, Italian consumer morale rose unexpectedly in January after three consecutive falls in monthly surveys by research institute ISAE, whose latest update on Tuesday suggested too that the fall in oil prices was the key influence.
"It is possible that consumers' views have been positively influenced by the reduction in price tensions," ISAE said, a reference to the recent sharp fall in inflation driven by reductions in fuel and food prices.
ISAE's seasonally adjusted consumer confidence index rose to 102.6, from 99.6, comfortably topping analysts' forecasts yet again even if it remains well below its long-term average of around 113.
Italy is the only country in the Cetelem survey where consumers' purchasing power has actually fallen in the 10 years to end-2007.
And they have little to cheer about in the outlook for GDP, with the gross domestic product forecast to drop 1.9 percent this year in the euro zone and 1.8 percent in the 27-country European Union.
Readings for consumer confidence remain weak and the picture mixed to an extent that economists see little reason to take the latest positive upsets with a large pinch of salt.
Marco Annunziata, chief economist at UniCredit bank, advises people to brace for further disappointments in the months head.
"I do believe we will touch bottom between this quarter and the next but I think these latest signals might be a short-term rebound rather than a turning point," he said.
AND INVESTORS TOO...
On the investment front, there are signs that optimism is growing but that few people are prepared to act on it yet.
Merrill Lynch's latest monthly survey of fund managers, for example, showed a substantial rise in the poll's indicator of economic growth expectations, to 30 in January from a low of 17 only last October..
But investors were hanging on to cash, the traditional allocation during times of uncertainty.
At the same time, State Street's global investor confidence index hit a four-month high this month.
There are also very tentative signs that some investors are willing to take on risk if the price is seen as right.
High-yield bond funds tracked by investment researchers EPFR Global, for example, have recorded eight consecutive weeks of net inflows.
This, however, must be ranged against a net $8.1 billion in outflows from equity funds in the third week of Janaury.
MSCI's main world stock index is down around 8 percent from January, albeit still at levels that are higher than a low last November.
One thing that is clearly not improving is how confident ordinary people feel about business, according to a survey commissioned by public relations firm Edelman.
Almost two-thirds of people said they became less trusting of business last year, according to the survey, conducted from early November to mid-December and involving 4,475 people with relatively high incomes and education.
In Ireland, the Celtic Tiger economy that is now the country in the deepest recession in the euro zone, 83 percent reported a loss of faith in business, according to the survey, which spanned 20 countries. (With reporting by Jeremy Gaunt in London, Paul Carrel in Berlin, Gavin Jones in Rome and Scott Malone in Boston; editing by Stephen Nisbet)