Euro zone government bond yields rose after traders were caught off guard by the Ifo. Investors to book profits after yields this week came within sight of hitting record lows.
"(It was) clearly much better than expected. There seems to be a balancing act between oil and the euro and lower oil prices seem to be winning out for the moment," said Kevin Grice, senior economist at American Express Bank.
The interest rate sensitive two-year Schatz yield was up 3.2 basis points at 2.39 percent. The benchmark 10-year Bund yield was 3.3 basis points higher at 3.60 percent, off Thursday's 18-month low at 3.52 percent.
European shares slipped off their highs but were supported by the data showing the unexpected rise in German business sentiment.
The FTSEurofirst 300 index was flat, but near its highest level since early July 2002. The DJ Euro STOXX 50 was down 0.11 percent.
Earlier, Japan's Nikkei share average rose to its highest close in four weeks as hopes grew for a seasonal year-end rally, spurring buying in a wide-range of issues.
The Nikkei ended up 1.41 percent or 153.95 points at 11,078.32, its best finish since Nov. 19 and rising 2.99 percent for the week. The broader TOPIX index added 0.93 percent to 1,111.35, its highest level since Nov. 17.