March 4 (Bloomberg) -- German unemployment rose for a second month in February as signs a recovery may stall deterred companies from hiring.

The number of jobless people rose a seasonally adjusted 26,000 from January to 4.29 million, the Nuremberg-based Federal Labor Agency said. The adjusted unemployment rate rose to 10.3 percent from 10.2 percent.

``There is, unfortunately, no reason whatsoever to sound the all-clear for the labor market,'' said Martin Wansleben, executive director of Germany's DIHK industry and trade association, which represents 3 million mostly small and medium-sized companies.

Chancellor Gerhard Schroeder and Economics and Labor Minister Wolfgang Clement have said the euro's rise to a record $1.2930 on Feb. 18 may hurt German exports, which account for a third of the economy. German business confidence fell for the first time in 10 months in February, partly on concern over the single currency's appreciation.

Schroeder has urged the European Central Bank to cut interest rates to stem the euro's rise. All 35 economists polled by Bloomberg News expect ECB policy makers to resist the political pressure and leave their benchmark rate unchanged at 2 percent when they meet today. The decision is announced at 1:45 p.m. in Frankfurt.

Companies such as packaging-machine maker Winkler + Duennebier AG and insurer Alte Leipziger Versicherung AG are still shedding jobs to cut costs even as signs of stronger economic growth and reviving domestic demand mount.

Exporting Jobs

Siemens AG, Germany's largest electronics company, may move up to 40,000 jobs outside Germany to cut costs and increase competitiveness, the Czerwensky newsletter said last month, citing unidentified people in the industry. Chief Executive Heinrich von Pierer has said he could hire 12,000 Chinese software programmers for the price he pays to employ 2,000 Germans.

The euro's 12 percent increase against the U.S. dollar over the past year is making it more difficult for companies including Volkswagen AG and ThyssenKrupp AG to be profitable abroad. The exchange rate ``is squeezing margins'' even though the single currency has retreated from its high, Wansleben said.

The dollar yesterday reached its highest level in three months against the euro on optimism that the pace of U.S. job growth is accelerating. The euro was at $1.2201 at 10:45 a.m. in Berlin.

``We expect unemployment to continue to rise at least until mid-2004,'' said Joerg Kraemer, an economist at Invesco Asset Management in Frankfurt in a telephone interview. ``An estimated 1.5 percent growth in gross domestic product in 2004 is too weak to lower unemployment.''

Decline Expected

The German government says it expects the number of jobseekers to decline in the course of 2004 as economic growth accelerates to as much as 2 percent. Clement said at a panel discussion in Munich today the jobless total will be ``near or below 4 million in September or October.''

Clement and Schroeder are counting on new labor-market rules, such as an easing of regulations on dismissing staff and a tightening of the entitlements to jobless benefit, as well as on tax cuts introduced in January to help reduce unemployment and spur consumer spending.

Germany's DIW economic institute said last week gross domestic product may grow 0.4 percent this quarter, twice the speed recorded in the final three months of last year, helped by ``robust'' exports and the tax cuts, worth 15 billion euros ($18.2 billion).

Consumer Optimism

Retail sales rose for the first month in three in January and the Ifo economic institute's measure of optimism among shop owners rose in February, suggesting consumers, whose confidence was little changed last month, may soon spend more.

Today's labor agency report said Germany's unemployment rate, adjusted for European Union standards, was 9.3 percent in February, up from 9.2 percent in January, when it was the third highest in the region using the euro after Spain and France.

The number of people out of work in western Germany, which accounts for more than 90 percent of national output, rose by a seasonally adjusted 16,000 in February to 2.72 million, while the number of unemployed in eastern Germany rose 10,000 to 1.57 million.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

Last Updated: March 4, 2004 04:49 EST