German Economic Expectations Beat Forecasts

German economic expectations improved far more than predicted in February, the Center for European Economic Research, or ZEW, said Tuesday.

The widely watched ZEW index rose in February for the third consecutive month after declining for nine straight months, during which Europe's debt crisis deepened.

The economic expectations index rose to 5.4 points in February, the first positive reading since May 2011, from January's unrevised -21.6.

Experts polled by Dow Jones Newswires had expected a rise to -11.6 for February. The last time the reading was this high was in April 2011.

The current conditions index rose to +40.3 from January's unrevised +28.4. Experts had forecast a reading of +30.0 for February.

Portugal's economy contracted slightly less than expected last year, but a sharp 2.7% in the fourth quarter from a year ago, signaling the country is in for a bigger recession in 2012.

Gross domestic product fell 2.7% in the fourth quarter on an annual basis, and 1.3% from the third quarter, according to a flash estimate from the National Statistics Institute.

For the year, the contraction was 1.5%, slightly better than the 1.6% estimated by the government and swinging from a 1.4% expansion in 2010. In 2012 the government is expecting a 3% contraction.

Also Tuesday, industrial production in the 17 countries that use the euro slumped in December, adding to fears the economy contracted in the final quarter of last year, and weighed down by monthly declines in Germany, France, Portugal and Greece, data showed.

According to figures released by the European Union's statistics agency Eurostat, industrial production fell 1.1% on the month in December and by 2.0% on the year, with the latter drop the first since December 2009.

The data were mixed when compared with expectations. Economists had forecast a 1.2% monthly decline and a 1.0% year-on-year fall, according to a Dow Jones Newswires survey last week.

Eurostat also revised its monthly estimate for November to show monthly production was flat, and an increase of 0.1% on the year.

Eurostat originally estimated that industrial production fell 0.1% on the month and was 0.3% lower on the year in November.

An 11.9% year-on-year slump in energy production weighed on total output. That was the biggest drop since a 12.5% fall in April 2009, Eurostat said.

By region, declines in Germany, France, Portugal and Greece where industrial production fell 2.7%, 1.3%, 1.6% and 2.4% respectively, when compared with November, led the monthly drop.

Spain and Ireland, two other economies experiencing fiscal problems, meanwhile, posted monthly gains of 0.9% and 2.5%.

The European Central Bank is widely expected to cut interest rates below the current record low of 1%, and this is likely to happen sooner rather than later if Wednesday's first look at euro-zone fourth quarter gross domestic product posts the expected contraction of around 0.4% compared with the third quarter.

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