* ZEW investor sentiment at highest level since April 2010
* Optimism about euro crisis, low interest rates behind rise
* Current conditions index dips, car sales slump
* Private consumption to rise again this year - GfK
By Victoria Bryan and Sakari Suoninen
MANNHEIM, Germany, Feb 19 (Reuters) - Optimism that the worst of the euro zone debt crisis is over has helped German investor and analyst sentiment soar to its highest level in nearly three years this month.
In the latest sign that Europe's largest economy is bouncing back after a dismal end to 2012, the Mannheim-based ZEW think tank said on Tuesday its monthly poll of economic sentiment rose to 48.2 points in February from 31.5 in January.
It was above the highest forecast in a Reuters poll and much higher than the consensus for 35.0 points.
The news, along with other recent data suggesting the German economy will avoid recession, will come as a relief to the centre-right government of Chancellor Angela Merkel, who is campaigning to win a third term in a September election.
"Financial market experts have made their peace with the weak fourth quarter of 2012," said ZEW president Wolfgang Franz. "In their opinion the German economy faces less headwinds from the euro crisis than throughout the last months."
The better-than-expected reading, which a ZEW economist said was also fuelled by low interest rates, boosted the euro and European shares and sent German Bund futures lower, although particularly on the bond market the move was short-lived.
Germany's economy held up strongly during the first 2-1/2 years of the euro zone debt crisis but sputtered in the second half of 2012 as firms postponed investment and exports suffered due to a gloomy economic outlook in Europe and elsewhere.
Economists expect a moderate return to growth in the first quarter of the year after a 0.6 percent contraction, but there is little hard data to support hopes that Europe's powerhouse economy will rebound quite as strongly as recent sentiment indicators suggest.
"This (rise) is still driven by the good mood on financial markets," said Alexander Koch of Unicredit. "But it's no bad supporting factor for the economy when financial markets don't go down the drain."
As euro zone peers suffered under their debt and the currency bloc fell into recession, German exports - usually the backbone of the economy - proved a drag on growth late last year and private consumption is becoming more important.
Market research institute GfK, which also publishes a monthly consumer sentiment indicator, said on Tuesday that private consumption would grow by 1 percent after inflation this year after 0.8 percent growth last year.
"Private consumption is making a stable contribution to the domestic economy," GfK chief Matthias Hartmann told a news conference in Nuremberg. "Given low interest rates and concerns about the future of the euro, purchases of durable goods are the trend for consumers."
Even as ZEW said the euro zone crisis had lost much of its horror, some risks remain to the outlook and German growth would likely not be dramatic, economists said.
Uncertainty has grown about a corruption affair in Spain and the political future of euro zone member Italy could still unsettle the currency bloc.
"If (Silvio) Berlusconi wins the election, the (reform) path could be in danger. Doubts about Italy's solidity could have serious consequences for the euro," said Norbert Barthle, budget expert for the Christian Democrats.
Investor sentiment on the current state of the German economy has yet to pick up. In February, it worsened to 5.2 from 7.1 in January, and some economists cautioned that ZEW was better at predicting turning points rather than the pace of growth.
"The ZEW provides ome further evidence that Germany is likely to see a little V-shaped rebound in Q1 after the sharp GDP contraction at the end of 2012," said Christian Schulz at Berenberg Bank.
Markets will now turn their attention to business sentiment figures from the Munich-based Ifo institute and purchasing managers data, both due later this week, for confirmation of the recovery.
Hopes for a German - and a broader euro zone - economic upturn have yet to feed through to the real economy, however.
German newspaper Handelsblatt, citing union sources, reported on Tuesday that economic bellwether Siemens may cut 7,000 jobs in Germany. At the moment Siemens employs 129,000 workers in Germany and 405,000 globally.
Data on Tuesday also showed that European car sales fell to a new low in January, starting 2013 with an 8.5 percent decline. Germany in particular weighed on the outlook. After resisting much of last year's slump, Europe's biggest car market is in sharp decline, extended by an 8.6 percent drop in January.
The ZEW index was based on a survey of 272 analysts and investors conducted between Feb. 4 and 18.