The unexpectedly strong business climate reading by Ifo came after Statistics Office data on Tuesday showed that rising private consumption and higher state spending on refugees more than compensated for weakness in foreign trade in the third quarter.

"The German economy remains unaffected by growing uncertainty worldwide. Not even the Paris attacks had a negative impact on survey data," the Munich-based Ifo economic institute said in a statement.

Data from the Federal Statistics Office earlier showed strong private consumption and higher state spending on refugees helped the economy to grow at a modest, albeit slower, pace of 0.3 percent in the third quarter.

Ifo's business climate index, based on a monthly survey of some 7,000 firms, jumped to 109.0 from 108.2 in October. It was the strongest reading since June 2014 and beat the Reuters consensus forecast for a reading of 108.2.

A separate index measuring corporate expectations over a half-year horizon jumped to 104.7, suggesting many firms believe they can cope with the economic headwinds.

"Neither the VW emissions scandal, nor the refugee crisis, nor the attacks in Paris are scratching the mood of German companies," DekaBank economist Andreas Scheuerle said, adding that German business morale was like a "teflon-coated pan".

Ifo economist Klaus Wohlrabe told Reuters that German consumption continued to perform well while export expectations remained positive, adding that a sub-index for the automotive sector continued to rise despite the VW emissions scandal.

Nordea Bank economist Holger Sandte said strong demand from the United States and Britain helped German exporters compensate for weaker sales to China, Russia and other emerging markets.

"German growth remains robust, the recovery continues," Sandte said.

U.S. BOON

Exports to the United States and Britain surged in the first three quarters of this year, helping companies to shrug off waning demand from China and Russia.

Fitting into this picture, the VDMA engineering association said on Monday the United States displaced China as Germany's top export market for machinery in the first nine months.

Record-high employment, rising wages and nearly stable prices are boosting household spending in Germany while cheaper gasoline is freeing up some cash for other purchases.

At the same time, the federal government and states are spending billions of euros on housing a record number of refugees as well as on integrating them and finding them jobs.

Higher state spending on refugees will help boost growth in the coming quarters also, DekaBank economist Scheuerle said, noting, however, that weak investment by German companies remained a problem for the economy.

Publication of the strong Ifo index followed the closely watched ZEW survey showed last week that morale among German analysts and investors improved more than expected in November despite the attacks in Paris.

In addition, a survey among purchasing managers pointed to accelerating growth in the private sector in November.

The government expects strong private consumption and higher state spending on refugees to drive economic growth of 1.7 percent this year and 1.8 percent next.

(Additional reporting by Rene Wagner und Klaus Lauer; Editing by Paul Carrel and Richard Balmforth)

By Michael Nienaber