German Business Mood Brightens Further in July

German business confidence rose further in July, it's third straight monthly increase, a key sentiment survey showed Thursday, in the latest indication that the euro zone is edging toward recovery.

The Ifo business confidence index rose to 106.2 in July from 105.9 in June, beating economists' forecasts for a 106.0 reading and rising further above its long-term average of 101.

The rise in confidence will come as a relief to the euro zone, after its largest economy barely grew in the first quarter. Consumers buoyant sentiment and rising business confidence indicate that economic growth will accelerate in the second half of the year and most economists expect full-year growth to average 0.5%.

"Firms remain cautiously optimistic with regard to their future business outlook," Kai Carstensen, who heads the Ifo survey said in a press release, describing German economic conditions as "fair."

The roughly 7,000 companies participating in the Ifo institute's monthly survey were more satisfied with their current business situation as the corresponding sub-index increased to 110.1 in July from 109.4 in June.

German Ifo business expectations weakened slightly, falling to 102.4 from 102.5 in June.

Write to Christopher Lawton at christopher.lawton@wsj.com