Berlin, June 11 (Bloomberg) -- German and U.K. companies increased production in April, a sign Europe's two biggest economies are recovering from last year's slump. Production at German factories, construction sites, utilities and mines rose 0.2 percent, after falling 0.3 percent in March, the Finance Ministry said. In the U.K., output advanced 1.1 percent in April, the first increase in eight months. ``Business has bounced back,'' said Andrew Gibson, the sales director of Icon Polymer Group Ltd., which makes plastic parts for automakers including Honda Motor Corp. and Toyota Motor Corp. in Nottinghamshire, England. Exports from both countries rose in April, separate government reports today showed. The revival in manufacturing, following a yearlong slump in Europe, is helping to keep the economy growing at a time when unemployment is rising. Industrial production accounts for about a quarter of both economies. German exports gained 2.1 percent in April after helping the economy out of recession in the first quarter. U.K. exports grew 2.6 percent, with sales to the U.S. increasing 4 percent. U.S. industrial production has risen every month this year and Japanese output increased for a third month in April. Companies from military-equipment maker Rheinmetall AG to Europe's biggest chipmaker STMicroelectronics NV have said they see rising sales or earnings as demand from abroad increases.

`Best in History'
``Our order book is the best in our history,'' Wendelin Wiedeking, chief executive officer of Porsche AG, said in an interview. The German sports-car maker expects to exceed last year's record profit and is adding extra shifts to make more cars. European stocks advanced after the reports. The Dow Jones Stoxx 50 Index added 32.26 points, or 1 percent, to 3202.33. Six stocks rose for every five that fell in the Stoxx 600 Index which climbed 1.87 point to 268.05. In the U.K., cars, computers and semiconductors led the gains for the month as Bayerische Motoren Werke AG, PSA Peugeot Citroen and other carmakers raised production. The German increase was led by a 2.3 percent jump in goods such as factory machinery. Revisions to U.K. industrial production may prompt the National Statistics Office to raise its estimate for gross domestic product in the first quarter later this month, economists said. Last month's second estimate of GDP showed no growth at all in the first three months of the year. German analysts and institutional investors were more optimistic in June than May, a survey published today by the ZEW research institute showed.

`Partial Recovery'
Germany's recovery is still uneven, reports have shown. While the economy started growing again in the first quarter after contracting in the previous two, unemployment increased in May at the fastest pace in five years and retail sales declined in April for the fourth time in five months. ``It's a partial recovery based only on exports,'' said Andreas Speer, an economist at Bayerische Landesbank Girozentrale in Munich. ``Domestic demand is still a catastrophe.'' DaimlerChrysler AG yesterday said car sales at its Mercedes- Benz unit fell 6 percent in May because strikes hurt production. Salzgitter AG, Germany's second-biggest steelmaker, on May 29 said it expects this year's earnings to almost halve. ``I'm not happy about the state of the economy,'' Gert-Jan Huisman, chief executive of Centrotec Hochleistungskunststoffe AG, said in an interview. ``The recovery is very slow and wavering. That affects our business.'' The European Commission cut its growth forecast for the dozen nations sharing the euro this quarter to at most 0.6 percent on May 30, compared with an earlier prediction of as much as 0.7 percent. The European Central Bank will release growth forecasts on Thursday.

Interest Rates
ECB President Wim Duisenberg last week indicated the central bank is considering raising interest rates, saying risks of higher inflation are on the upside. The bank's main lending rate has been at 3.25 percent since November. The 18-member governing council next meets on July 4 to set the price of credit. The bank has said it expects growth to reach as much as 2.5 percent by year-end. Investors expect the ECB to raise lending rates by September, interest-rate futures contracts show. The yield on the 3-month Euribor for September delivery is at 3.74 percent, compared with 3.47 percent for the current 3-month rate. The ECB main refinancing rate is at 3.25 percent.

Euro's Appreciation
The euro's gain against the dollar is helping the ECB to keep inflation in check by suppressing the price of imports. If the currency rises further, it may hurt exporters by making their products more expensive. The euro has risen 7 percent in the last three months and was recently at 94.19 U.S. cents. The British pound has risen almost 2 percent in the same period and was last trading at $1.4654. Signs the economy is recovering will give the Bank of England room to raise interest rates. The bank cut its benchmark lending rate 2 percentage points last year to 4 percent, aiming to keep the U.K. from following the U.S., Germany and Japan into recession. Those cuts stimulated consumer spending and helped offset the worst manufacturing slump in a decade. European manufacturing expanded at the fastest pace in 15 months in May, a survey of purchasing managers showed last week. French companies probably also increased production in April, analysts said.