Eurozone economic confidence reached the highest level for more than five years in October even though storm clouds are gathering over the 2007 growth outlook, an EU survey released Tuesday showed.

The eurozone economy showed the fastest economic growth for six years in the second quarter, and buoyant confidence in October painted a bright outlook for the third quarter, economists said.

Optimism in the industrial, services and retail sectors drove overall economic confidence in the 12-nation eurozone to the highest level since the dot.com bubble, a European Commission survey showed.

The EU executive's economic sentiment indicator rose to 110.3 points in October from 109.3 points in September, beating private economists' forecasts for a reading of 109.4 points.

The commission said that its separate eurozone business climate indicator "remained broadly stable" in October at the highest level since October 2000.

Confidence in the eurozone outlook has steadily firmed since mid-2005 as economic growth gradually gathers steam thanks to increasingly strong domestic demand.

The upbeat outlook is all the more notable because of slowing growth in the United States, which has in the past had a knock-on effect on the eurozone's export-driven economy.

"Currently, Europe is no longer relying only on export markets to support growth, since the up-turn has been driven mainly by domestic demand," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in a speech in Munich on Monday.

"Private investment, in particular, accelerated to an annualised growth rate of six percent. Private consumption has also recorded an improving trend, underpinned by job creation," he added.

But although confidence remains high, not all economic indicators point north with weak German retail sales and soft French consumer confidence.

German data released Tuesday showed that retail sales declined in September confounding analysts' expectations of an increase ahead of the planned rise in value-added tax at the beginning of next year.

While predicting that sales could still pick up in a final burst of spending before the end of the year, Unicredit economist Andreas Rees described the data as "absolutely disappointing".

On another sour note, French consumer confidence fell slightly in October, even though France's stubbornly high unemployment fell more quickly than expected in September to a five-year low of 8.8 percent.

Although eurozone confidence has held up so far a host of factors, including headwinds from the the United States, are expected to weigh on growth next year.

Forecasting eurozone growth to slow to 1.8 percent in 2007 from 2.6 percent this year, Global Insight economist Howard Archer said that the bloc's economic performance "will be partly affected by slower US growth and, indeed slower, global expansion".

"We also expect eurozone growth to be adversely affected in 2007 by higher interest rates, tighter fiscal policy in a number of countries -- notably the German sales tax hike -- still relatively elevated oil prices and, very possibly, a firmer euro," he added.