*

Ifo business climate index rises to 88.4 in June from 87.5

*

New government's fiscal package boosts economic confidence

*

Middle East tensions impact sentiment

(Adds details, economists' comments in paragraphs 5-10)

By Maria Martinez

BERLIN, June 24 (Reuters) - German business morale

improved more than expected in June, a survey showed on Tuesday,

potentially marking a turning point for Europe's biggest economy

as lower borrowing costs and the government's fiscal package

boost confidence.

The Ifo Institute said its business climate index rose to

88.4 in June from 87.5 in May, ahead of the 88.2 reading

analysts forecast in a Reuters poll, with the services sector

showing the strongest improvement.

"The German economy is slowly gaining confidence," Ifo

president Clemens Fuest said.

A jump in the expectations index to 90.7 from 89.0 accounted

for most of the improvement, which Joerg Kraemer, chief

economist at Commerzbank attributed primarily to the new

government's huge fiscal package and falling euro zone interest

rates.

"The sixth consecutive rise in the Ifo business climate is a

clear signal that the economic low is behind us," Kraemer said.

Germany is the only Group of Seven nation to record no

economic growth for two consecutive years and its

export-oriented economy risks another contraction because of

tariffs rolled out or threatened by President Donald Trump's

administration.

The new conservative-led government is seeking to avert that

with a 46 billion euro tax relief package and other measures.

Ifo's assessment of the current situation improved only

marginally to 86.2 in June from 86.1.

Alexander Krueger, economist at Hauck Aufhaeuser Lampe

private bank, blamed the weak current conditions index in part

on volatile Middle East, which in recent weeks witnessed an

aerial war between Israel and Iran and U.S. strikes on Iranian

nuclear facilities.

"It is obvious that the events in the Middle East have

weighed on sentiment," Krueger said.

A separate Purchasing Managers' Index survey on Monday

showed that business activity in Germany returned to growth in

June, driven by a recovering manufacturing sector that reported

its strongest increase in new orders in over three years.