The closely-watched business climate index for West Germany jumped to 98.9 in November, far exceeding expectations for a 96.9 reading and up from October's 96.1. The report pushed the euro up as far $1.0178, its highest since December 10. "It was a cracking number and good for the euro," said David Coleman, chief economist at CIBC World Markets in London.

"It is not the first good number we have had out of the eurozone but all the good news had so far fallen on deaf ears. However, this was so spectacular that it was impossible to ignore."

The report also helped the single currency claw back losses of more than one per cent it had suffered against the yen in Asia and pushed it to a day's high of 62.90 pence against sterling.

Analysts said the stronger-than-expected Ifo reading increased the chances of an interest rate hike in the euro zone early next year, especially if the German report was followed by equally strong readings at euro zone levels. "The market seems to focus on German numbers, but theEuropean Central Bank is focusing on European numbers," said Paul Lambert, senior currency strategist at Citibank in London.

"If we see a similar jump in euro-wide survey data I think this would be a strong indication that the ECB might move earlier than the market expects." Analysts polled by Reuters on average expect the ECB to hikeits key refinancing rate from 3.0 percent in the first quarter of 2000.

Analysts said thin year-end market conditions could, however, limit the positive impact of the data in the near term.