By Sakari Suoninen and Eva Taylor
MANNHEIM, Germany (Reuters) - German analyst and investor sentiment climbed more than expected in August, a leading survey showed on Tuesday, suggesting Europe's largest economy is gradually regaining momentum after suffering a contraction in late 2012 and a weak start to 2013.
The ZEW economic think tank's monthly poll of economic sentiment rose to 42.0 from 36.3 in July, reaching its highest level since March and beating the consensus forecast in a Reuters poll for a rise to 40.0.
That sent the euro higher and caused Bund futures to extend their losses.
"It looks as if there will be a turning point in the coming weeks. The ZEW proves that," said Thomas Gitzel at VP Bank.
"The latest early indicators and hard facts - such as the big gain in industry output in June - make the case for an improvement after a long, dry spell," he added.
Initial signs that the euro zone is emerging from a recession that took hold in late 2011 likely pushed the index higher, while solid demand in Germany also helped, said the Mannheim-based ZEW institute.
Data on Wednesday is expected to show the euro zone economy grew 0.2 percent in the second quarter. That would be good news for Germany, Europe's largest economy, which sends some 40 percent of its exports to the single currency bloc.
There have been encouraging signs from struggling euro zone states of late, with Greece beating its fiscal targets in the first seven months of the year while Spain and Italy's 10-year debt risk premiums have hit their lowest in two years.
The ZEW figures chimed with recent upbeat data showing German industry orders and output surging, the private sector expanding, exports rising, unemployment falling and sentiment among both consumers and businesses picking up.
Domestic demand prevented Germany from falling into recession in the first quarter and consumer morale has surged to its highest level in almost six years, as Germans benefit from a stable labor market, wage rises and moderate inflation.
Private consumption is expected to have helped drive an increase in output of around 0.6 percent between April and June, according to a Reuters poll ahead of Wednesday's release of preliminary German gross domestic product (GDP) data.
ZEW economist Michael Schroeder said the rise in euro zone expectations to 44.0 in August - its highest since April 2010 - from 32.8 the previous month, was "a good sign that the worst regarding the recession in Europe might be over".
Nonetheless, German companies have been downbeat about business in both Europe and emerging markets during the current earnings season. Consumer goods company Henkel revised down its growth forecast for emerging markets and synthetic rubber maker warned sentiment in markets like China and Brazil as well as Europe was fragile.
The ZEW index was based on a survey of 252 analysts and investors conducted between July 29 and August 12, ZEW said.
(Reporting by Sakari Suoninen and Eva Taylor; Writing by Michelle Martin; Editing by Stephen Brown)