A key poll of German business confidence unexpectedly rose, a signal that Europe's leading economy may be able to grow next year despite a planned tax hike.

The Ifo Institute said on Wednesday that its business climate index rose to 105.3 in October from 104.9 in September, against expectations that the index would decline somewhat. Importantly, not only did the business situations subcomponent continue to climb -- it's steadily improved since July -- but the business expectations subcomponent rose for the first time since June.

"These survey results indicate that the economic expansion will continue despite the increase in VAT next year," the Ifo Institute said. The Ifo polls about 7,000 German managers each month. Value-added tax in Germany is due to rise three percentage points to 19% in 2007.

With attention firmly on the U.S. Federal Reserve's interest-rate decision later Wednesday, the poll didn't have a huge impact on financial markets. The euro rose to $1.2566 from $1.2557 late Tuesday.