By Michael Nienaber
BERLIN (Reuters) - The mood among German investors improved more than expected in September as worries about the stronger euro <EUR=> faded, suggesting that markets expect Europe's biggest economy to continue its solid performance in coming months.
Record-high employment, rising real wages and ultra-low borrowing costs are driving a consumer-led upswing in Europe's biggest economy that looks set to help Chancellor Angela Merkel win a fourth term in office in a federal election on Sunday.
The Mannheim-based ZEW research institute said its monthly survey showed its economic sentiment index rose to 17.0 from 10.0 in August. This beat a Reuters consensus forecast for an increase to 12.5.
A separate gauge measuring investors' assessment of the economy's current conditions edged up to 87.9 from 86.7 last month. This compared with the Reuters consensus forecast predicting a dip to 86.6.
In a further positive sign for the German economy, the HDE retail association on Tuesday raised its 2017 forecast for nominal sales to grow by 3 percent, up from its previous prediction of 2 percent.
ZEW head Achim Wambach said financial market experts were more upbeat because of Germany's solid economic growth figures in the second quarter, a surge in bank lending and increased investment activity by both the government and firms.
"Their expectations are further corroborated by stable global economic development," Wambach said, adding that worries about negative effects of the stronger euro had faded into the background.
Wambach also said that the German federal election does not seem to have been a source of uncertainty.
Merkel's conservatives are expected to win Sunday's federal election. But they are likely to fall short of a clear majority and it remains unclear which smaller parties Merkel will start coalition negotiations with.
Capital Economics analyst Stephen Brown said the surprisingly solid rise in German investor sentiment suggested the economy would continue to perform well.
The BDI industry association last week said it expected the German economy to grow by more than 2 percent this year adjusted for calendar effects, which would be the strongest pace in six years.