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UPDATE 1-German Feb engineering orders rise despite euro

(Adds more quotes in paragraphs 4-5, background, MAN comment in paras 9-12)

BERLIN, March 30 (Reuters) - German engineering orders rose in February, with foreign orders up 12 percent year-on-year despite the strength of the single currency, the VDMA plant and equipment makers association said on Tuesday.

VDMA said overall engineering orders rose five percent in February compared with the same month in 2003.

"The positive foreign orders in February show once again that volume growth is still possible despite the high euro exchange rate," said VDMA chief economist Ralph Wiechers.

The euro hit a record high above $1.29 in February, although has since fallen back to levels around $1.22.

Wiechers said any exchange rate over $1.15 presented "headwind" for industry but strong demand from Asia and the United States was sustaining growth.

"The world economy is the driver, the euro is decisive only for the quality of profits," Wiechers said, adding the euro's rise had already cut into manufacturers' margins.

Domestic orders fell five percent year on year, but VDMA said the drop should not be "overinterpreted".

"We are just seeing some normalisation here. The level was lifted in recent months by a big ticket item," Wiechers said.

VDMA noted its three month average, covering December to February, showed a seven percent year-on-year rise for domestic orders and a 19 percent year-on-year rise for foreign orders. Orders overall in the same period were up 15 percent.

Engineering orders form a small part of overall industry orders data, due to be released by the economy ministry next week.

Fears Germany's export-led recovery could be stuttering were fuelled when a closely-watched business climate index compiled by the Munich-based Ifo institute fell in February for the first time in 10 months. It also fell in March, Ifo said last week.

However, German truck and engineering group MAN AG reported on Tuesday a strong start to the year, with orders up seven percent in the first two months of the year, and said it expected a "moderate recovery" to help lift sales in 2004.

"Preliminary corporate data indicates that in March a double digit rise in new orders can be reached," the company said.