BERLIN, July 27 (Reuters) - German business morale grew more

than expected in July as the outlook for companies improved

across sectors, a survey showed on Monday, although they

continue to face risks from the impact of the Iran war.

The Ifo institute said its business climate index rose to

86.6, its highest level since February and the third consecutive

monthly increase. It rose from a slightly upwardly revised 85.7

in June.

Analysts polled by Reuters had forecast an increase to 86.0.

"Despite the uncertain situation in the Persian Gulf, the

German economy is showing less pessimism," Ifo President Clemens

Fuest said.

"Even if the third consecutive increase in the Ifo index is

not yet a reason to prepare for the next growth party in

Germany, it at least shows a certain resilience of the economy,"

said Carsten Brzeski, global head of macro at ING.

CURRENT SITUATION LESS GOOD

Economic expectations rose to 86.7 in July from 84.3 in

June, posting a six-month high.

This reflected the government's recent reform package, its

continued commitment to infrastructure-related fiscal stimulus,

and hopes that the worst of the U.S.-Iran war is over, said

Claus Vistesen, chief euro zone economist at Pantheon

Macroeconomics.

However, companies were slightly less satisfied with their

current business performance, with the index falling to 86.5 in

July from 87.0 in the previous month.

"Today's Ifo index reading probably reflects more the

initial relief after the U.S.-Iran Memorandum of Understanding

than the recent surge in energy prices," said Brzeski.

The recent escalation in the conflict in the Gulf and the

associated renewed rise in oil and gas prices are likely to have

weighed on the current situation index and remain a risk for the

coming months, said Marc Schattenberg, research economist at

Deutsche Bank.

Business sentiment improved across all economic sectors, the

survey showed.