By Simone Meier April 29 (Bloomberg) -- European confidence in the economic outlook improved to the highest in more than two years and German unemployment plunged amid signs the euro-area recovery is strengthening even as Greece’s fiscal crisis spreads across the region. An index of executive and consumer sentiment in the 16 euro nations rose to 100.6 in April from a revised 97.9 in March, the European Commission in Brussels said today. That exceeded the 99.4 median estimate of 24 economists in a Bloomberg News survey. In Germany, the region’s largest economy, unemployment fell 68,000 to 3.29 million in April, almost seven times more than economists had forecast. Accelerating global economic growth is bolstering confidence and boosting sales at European companies including Siemens AG, Europe’s largest engineering company. Still, Greece’s budget crisis is already threatening to undermine the recovery. Stocks and bonds in Europe plunged this week after Standard & Poor’s downgraded Spain and Portugal. The increase in sentiment “contrasts sharply with growing concern that the Greek crisis may be spreading,” said Martin van Vliet, an economist at ING Group in Amsterdam. Second- quarter economic “growth may turn out to be quite flattering, but with the Greek debt crisis showing signs of spreading, recovery prospects thereafter look increasingly uncertain.” ‘Multi-Year Headache’ Investor concern about a European fiscal crisis has pushed the euro down about 11 percent against the dollar in the past six months, making it the worst performer among its 16 most- traded peers. The single currency traded at $1.3274 at 11:06 a.m. in London, up 0.4 percent on the day. The Stoxx Europe 600 Index reversed losses after the confidence report, increasing 1 percent. Greece will be a “multi-year headache for the euro region,” said Marco Annunziata, chief economist at UniCredit Group in London. “If contagion became systemic, it would deal a potentially crippling blow to the euro-region growth outlook.” S&P this week downgraded Greece’s credit rating to junk, days after the nation called for activation of a financial lifeline of as much as 45 billion euros ($59.7 billion) following a surge in its borrowing costs. S&P cut Spain’s credit rating to AA yesterday, a day after paring Portugal’s to A-. Aid Package The Greek aid package “doesn’t ease my fears,” said Rossa White, chief economist at Davy Stockbrokers in Dublin. “I’d certainly like to see a much clearer plan how they’re going to tackle their finances. I’d like to see concrete measures.” The extra yield that investors demand to hold Greek 10-year bonds over German bunds was at 586 basis points today, after surpassing 800 basis points yesterday. The premium on Portuguese bonds rose to 277 points this week, the most since 1997. The spread on Spanish debt widened to the most in more than a year. An index of confidence in Greece fell to the lowest in 11 months, the commission report showed, while a gauge for Portugal slipped after improving for five straight months. Sentiment in Spain improved for a seventh month. The commission’s survey was conducted before the April 11 agreement by euro-area nations to offer the support mechanism for Greece. Manufacturers The commission’s gauge measuring confidence among manufacturers rose to minus 7 in April from minus 10 in the previous month and an indicator for consumer optimism increased to minus 15 from minus 17. European companies may rely on an export-led recovery to help bolster sales this year as consumers hold back spending. Global economic growth will probably accelerate to 4.2 percent this year, the fastest pace since 2007, the Washington-based International Monetary Fund forecast on April 21. Emerging economies including China and India will lead the recovery, expanding 6.3 percent in 2010, the fund said. Munich-based Siemens today raised its full-year earnings forecast as cost cuts and improving demand helps profit. Norbert Reithofer, chief executive officer of Bayerische Motoren Werke AG, said on April 23 that the company expects full-year sales in China to beat its previous forecast. Manufacturers’ capacity utilization rose to 75.5 percent in the second quarter from 72.3 percent in the previous three months, the commission said today. That’s the highest since the fourth quarter of 2008. Companies also grew more optimistic about the order outlook and employment prospects. Capacity Utilization The decline in German jobless in April lowered the country’s unemployment rate to 7.8 percent from 8 percent in March. European unemployment probably remained at 10 percent in March, according to a Bloomberg survey. That’s the highest since August 1998. The European Union’s statistics office in Luxembourg will release the jobless report tomorrow at 11 a.m. Consumers are already growing less optimistic that a recovery will feed into the labor market. A gauge measuring households’ expectations of euro-region unemployment over the next 12 months fell to 36 from 46 in March. An indicator of consumers’ price expectations over the next 12 months rose to 8 from 4 in March, today’s report showed. “Challenges remain great,” said Volker Kronseder, CEO of Krones AG, a German maker of bottling and packaging equipment, on April 27. “We are doing everything we can to further strengthen the company, including cost-cutting measures.” To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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