Feb. 22 (Bloomberg) -- French executives' confidence rose in February to the highest in more than a year after a bigger-than- expected increase in consumer spending, suggesting Europe's third- largest economy is picking up.

An index of sentiment among 2,000 manufacturers rose to 105, above analysts' forecasts and the most since January 2005, from 103, Insee, the national statistics office, said today in Paris. Purchases of manufactured goods increased a seasonally adjusted 0.9 percent in January after declining 0.5 percent in the previous month, a separate Insee release showed.

The French economy may accelerate this year as companies including Dassault Systemes SA, the world's largest maker of computer-aided design software, benefit from a weaker euro and declining unemployment bolsters consumption. European Central Bank council member Nicholas Garganas said Feb. 20 the bank may raise its growth forecast for the dozen euro nations.

The Bank of France said Feb. 14 the economy would expand 0.6 percent in that period, three times the fourth-quarter's pace, as industrial production expands.

Economists expected business confidence to rise to 104 this month, according to the median of 30 estimates in a Bloomberg News survey. They forecast a consumer spending increase of 0.8 percent.

The euro traded at $1.1898 at 10:32 a.m. in Paris after $1.1912 yesterday. France's CAC 40 Index, up 28 percent over the past 12 months, was little changed at 5004.

The Frankfurt-based ECB currently expects the euro region economy to expand about 1.9 percent after growing 1.4 percent in 2005. In comparison, the French economy may grow as much as 2.5 percent this year, the government estimates.

In Italy, consumer confidence rose this month to the highest in more than three years, the Rome-based Isae Institute said today. An index based on a poll of 2,000 households by Isae rose to 110 from a revised 106.5 in January, its highest level since September 2002.

The euro's 10 percent drop against the dollar over the past year has boosted companies' earnings by making goods more competitive abroad. Dassault said on Feb. 9 that fourth-quarter profit rose 15 percent as it added clients including battery maker Duracell International Inc. The Suresnes, France-based company forecast higher 2006 profit after lifting its outlook three times last year.

Alstom SA Chief Executive Officer Patrick Kron said in an interview on Feb. 5 that the world's largest maker of high-speed trains expects full-year results to ``confirm the positive trend'' announced earlier. The Paris-based company said last month that fiscal third-quarter orders jumped 42 percent.

A gauge measuring companies' orders from abroad rose to 8 from minus 5 in January, today's report showed. Manufacturers grew more optimistic about their production outlook, with a sub-index increasing to 11 this month from 8.

A retreat in oil prices from a record of $70.85 per barrel on Aug. 30 in New York is easing cost pressure on companies and lifting households' purchasing power. Average gasoline prices in France were $5.65 a gallon this month, down from $5.72 in January.

French households stepped up spending in January as retailers cut prices in the semi-annual sales season. Sales of clothes and leather goods increased 3.4 percent from the previous month and shoppers snapped up 1.5 percent more furniture, Insee said.

With domestic spending accounting for more than half of French gross domestic product, the government has made it its priority to create more jobs such as by loosening firing rules. The French jobless rate fell for a fourth month in December to 9.5 percent, the lowest in almost three years.

``At the moment, we don't see a reason for concern for consumer spending in 2006, provided unemployment continues to decline and with wages giving signs of picking up,'' said Nicolas Bouzou, chief economist at Xerfi research institute in Paris.

Stronger growth is giving the ECB more leeway to raise interest rates from 2.25 percent. Garganas said that he expects euro-region consumption to pick up as companies boost hiring and spending to meet rising demand.

Investors are betting the bank will raise the benchmark rate to as high as 3 percent by the end of 2006, futures trading shows the implied rate on the three-month contracts for December settlement was at 3.10 percent today.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's benchmark rate since the currency' launch in 1999.

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