UPDATE 1-German industry orders jump, suggest sector recovery
* Industry output rises 2.3 pct vs f'cast 1.2 pct
* Domestic demand for capital goods drives jump (Adds details, quotes, background)
By Sarah Marsh
BERLIN, April 5 (Reuters) - Swelling domestic demand for capital goods drove a stronger-than-expected rise in German industrial orders in February, adding to signs Europe's largest economy and growth engine is back on track after a dismal end to last year.
Seasonally and price-adjusted order intakes rose 2.3 percent on the month, data from the Economy Ministry showed on Friday, well above a forecast in a Reuters poll of 34 economists for a 1.2 percent rise. It was the strongest rise since October, and made up for a 1.6 percent fall in January.
The data was a further indication that Germany's robust domestic economy will probably compensate for weak demand this year from top trading partners in Europe, which are struggling with the debt crisis.
"Today's new order data add to the evidence that the German economy's decoupling from the rest of the euro zone is continuing," said ING's Carsten Brzeski. "With the solid labour market and surprisingly strong retail sales, domestic demand should be an important growth driver this year."
"In addition, the pick-up in non-euro zone demand shows that the German economy benefits from the gradual recovery of the global economy," he said.
German retail sales also rose in February, for the second month in a row, figures showed last week.
By contrast, trade in euro zone shops overall was weaker than expected in February, falling 0.3 percent on the month and raising doubts about how quickly the euro zone can recover from recession.
Friday's data showed domestic industrial orders were up 2.2 percent, while intake from abroad increased 2.3 percent. Orders from the euro zone were up 1.6 percent, after dropping 3.8 percent in January, while intake from further afield rose 2.7 percent.
Germany's economy, long resilient to the euro zone crisis, slowed in 2012 and output shrank by 0.6 percent in the fourth quarter. But economists expect it to avoid recession and to have returned to weak growth in the first three months of 2013.
German growth is crucial for stimulating the economy of the broader single currency bloc.
Domestic orders for machinery and other capital goods jumped 4.4 percent, which the economy ministry said set the stage for a revival in investments.
"With the current revival of orders, the industrial sector is increasingly overcoming its weak phase," the ministry said in a statement. "The progressive revival of the industrial sector that has been predicated by the sentiment indicators is increasingly being confirmed by real economic indicators."
Sentiment indicators have generally been positive so far this year, despite industrial output stalling and orders falling in January. A survey last week showed consumer morale holding steady heading into April as Germans became more upbeat about the economy.
The survey showed their desire to shop held at a good level due to the stable labour market, with unemployment near a post-reunification low, easing inflation and the low interest rates being offered by banks. (Additional reporting by Klaus Lauer and Annika Breidthardt,; Editing by Stephen Brown and Susan Fenton)
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