WRAPUP 1-German recovery quickens, led by industry

* GDP accelerates in Q3 on firmer inventories, investment

* Private consumption a drag after helping end recession

* Business sentiment rises, but credit crunch fears grow

By Paul Carrel

BERLIN, Nov 24 (Reuters) - German economic growth accelerated in the third quarter on a build up of inventories and gains in investment, and firmer business morale in November boosted hopes the recovery can gain momentum.

The Ifo think tank's business climate index, based on a monthly poll of some 7,000 firms, rose in November to a 15-month high, taking corporate sentiment to a level last seen before the collapse of U.S. investment bank Lehman Brothers in 2008. [ID:nGEE5AN0TL]

Yet the positive news was overshadowed by growing concerns about the flow of credit to German businesses, with a down-to-the wire search for funds at crisis-rocked lender WestLB [WDLG.UL] dealing a fresh blow to the financial sector. [ID:nGEE5AN0F2]

"We're not yet out of the trough," said German Chancellor Angela Merkel.

"We're moving in extremely fragile and unpredictable territory...it's nearly impossible to predict how the economy will develop," she said at an employers' conference.

Europe's largest economy emerged from its deepest post-war recession in the second quarter, aided by government stimulus measures including a car-scrapping subsidy that gave a short-term boost to private consumption but which has now faded.

"We still expect Germany to lead the euro zone recovery, but growth will not be strong enough to use up the slack in the economy for a very long time," said Jennifer McKeown, an economist at Capital Economics in London.

The third quarter gross domestic product (GDP) figures showed private consumption was a drag on growth as the car-scrapping subsidy expired in early September, but that this was more than offset by the gains in inventories and investment.

"It's a positive signal that equipment investment rose so strongly. The companies are optimistic again about future business, even if we remain at a very low level," said DekaBank economist Sebastian Wanke.

"On the other hand, private consumption is becoming the number one burden," he said, adding that he expected rising unemployment next year to weigh on household spending.

((For details of the GDP data, click on [ID:nBAF003859]))

INDUSTRY REBOUNDS

The Ifo economic institute's business climate index showed sentiment in the manufacturing sector -- crucial to the fortunes of Germany's export-orientated economy -- had brightened.

"German industry is bouncing back. Some sectors have already outweighed half of the crisis-related losses," said Carsten Brzeski, an economist at ING Financial Markets.

The euro's strength EUR= was weighing on German exports but strong foreign demand was more than off-setting this, said Ifo economist Klaus Abberger.

Although the Finance Ministry has forecast growth will slow in the final quarter, resurgent German industry is adding to steel to the recovery, with manufacturing orders rising in September for a seventh consecutive month.

This month Gulf state Qatar revealed details of a 17 billion euro ($25.34 billion) project with rail firm Deutsche Bahn, one of the biggest ever foreign deals for Germany, the world's biggest exporter of goods since 2003.

Many firms remain wary about the business outlook, however, and policymakers are worried that banks will tighten credit next year just as manufacturers need the funds to meet their orders.

"I see the danger of a widespread credit crunch for large swathes of the German economy," said Dieter Hundt, president of the German employers' association. "The financing problems for many companies have dramatically worsened already."

Germany's biggest steelmaker, ThyssenKrupp (TKAG.DE), said this month it "feels the currently emerging economic recovery is still fragile" and "one cannot rule out a small dip in 2010". (Additional reporting by Dave Graham, Noah Barkin, Erik Kirschbaum and Madeline Chambers; Editing by Matthew Jones) ((paul.carrel@reuters.com; +49 30 2888 5214; Reuters Messaging: rm://paul.carrel.reuters.com@reuters.net)) ($1=.6708 Euro)