Will the German stock market rally last?

Thanks to strong global and local economic growth, Germany's benchmark index approached a record closing high last week. Then global jitters suddenly wiped 4% off the market. So what next?

German investors were ready to uncork the champagne last week. Thanks to strong global and local economic growth, the benchmark DAX index was rapidly approaching its record close of 8,065, set in March 2000. But then global jitters suddenly wiped 4% off the market. So what next?

The macroeconomic backdrop remains auspicious, with the erstwhile "sick man of Europe" spearheading a strong European recovery. After 2.8% growth in 2006, a similar figure is on the cards for this year. The strong global economy has boosted exports, which were up 13% year-on-year in April, while corporate spending on equipment rose by the most in seven years in the first quarter. The export-led recovery is slowly broadening beyond business investment to consumption as unemployment declines. Retail sales in April posted the biggest gain in four months. "It's the consumption side of things that's getting people really excited now," says Rob Burnett of the Neptune European Opportunities fund.

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