Berlin- German investor confidence plunged in October, a key indicator released Tuesday showed, with the survey representing an early test of sentiment in Europe's biggest economy following the global share meltdown.

Drawn up by the Mannheim-based Centre for European Economic Research, the ZEW index for this month slumped more than forecast to minus 63.0 from minus 41.1 points in September.

Analysts had predicted that the index would fall to minus 51.1 points in October.

Based on responses from 256 analysts and institutional investors, the ZEW survey was compiled against the backdrop of a wave of panic selling on share markets last week triggered by the world's biggest financial crisis since the 19309s Depression.

"The concerns of the financial market experts that the crisis on the financial markets might spill over to the real economy increased this month," said ZEW president Wolfgang Franz releasing the group's latest survey.

"The German Government's recently decided rescue package should, however, help to stabilise the situation," Franz said.

A separate survey undertaken by the ZEW on Monday, when the German government outlined its bank rescue package, showed that the decline in economic expectations for Germany was less pronounced after the action plan was agreed to by political leaders in Berlin, the institute said.

Indeed, a renewed sense of optimism has re-emerged this week on global share markets following concerted action by governments around the world to shore up economic and investor confidence.

The publication of the ZEW index coincided with the release of a report by Germany's leading economic research institutes warning that the nation's economy was on the edge of a recession.

The institutes slashed their growth forecasts for next year to just 0.2 per cent compared to a previous projection of 1.4 per cent. (dpa)