By Michael Nienaber and Maria Sheahan
BERLIN (Reuters) - The mood among German investors fell for the third month running in August, a survey showed on Tuesday, linking the drop to an emissions scandal engulfing the country's car industry.
The sector's reputation and the "clean" diesel technology at its core has been battered since Volkswagen admitted in 2015 to cheating U.S. emissions tests to conceal polluting fumes.
Last month EU antitrust regulators opened an investigation into claims of collusion among German carmakers over pricing diesel emissions treatment systems.
Achim Wambach, president of the ZEW research institute, said the scandal, along with broader signs of weakness in the export sector, had driven the drop in its sentiment reading for Europe's biggest economy.
The Mannheim-based institute's monthly index fell to 10.0 in August from 17.5 in July, undershooting a Reuters consensus forecast of 15.0 and the lowest reading since last October.
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"The significant decrease ...reflects the high degree of nervousness over the future path of growth in Germany," Wambach added.
He also said the overall outlook remained "relatively stable at a fairly high level" - an assessment more in line with a bullish monthly report issued on Monday by the German central bank.
The Bundesbank said the economy could grow faster than expected this year thanks to exceptionally strong industrial output, exports and consumption.
The economy's solid performance is playing into the hands of Chancellor Angela Merkel in the run-up to a federal election on Sept. 24, when she is heavily tipped to win a fourth term.
The car industry, which is Germany's biggest exporter and provides about 800,000 jobs, has agreed with Berlin to renew engine software on millions of diesel cars and pay customers bonuses to upgrade to cleaner vehicles as they face potential driving bans in major cities and dwindling diesel sales.
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A separate ZEW gauge measuring investors' assessment of the economy's current conditions edged up to 86.7 from 86.4, compared with a Reuters consensus forecast predicting a dip to 85.5.
Second quarter figures released by the Statistics Office last week showed an annualised economic growth rate of 2.1 percent in the April-June period, driven by soaring private consumption and higher state spending.
The Bundesbank said in June it expected a 1.9 percent expansion in 2017, an upbeat picture supported by solid figures from the private sector.
That includes Volkswagen, Germany's biggest blue-chip company by market value, raised its 2017 sales forecast last month after cost-cutting and higher-margin new models at its namesake brand helped it beat quarterly profit expectations.
Nearly a third of blue-chip companies raised their full-year guidance after recording a rise in profits for the second quarter to June.
According to consultancy EY, the 30 DAX index-listed companies' combined operating profits jumped by almost a third to a record level of over 39 billion euros ($45.9 billion), helped by demand from Asia and the United States.
The German government predicts an unadjusted growth rate of 1.5 percent for 2017. This would translate into a calendar-adjusted figure of 1.8 percent.
With the euro zone economy expanding for the 17th straight quarter, Germany has been the engine of recovery, giving the European Central Bank some room to at least discuss curtailing its unprecedented stimulus cocktail.
The ZEW indicator, based on the survey of some 200 analysts, will be followed by the closely watched Ifo business climate index on Friday. Analysts expect it to fall to 115.5 points after hitting three record highs in a row from May to July.
($1 = 0.8506 euros)
(Reporting by Michael Nienaber and Maria Sheahan; Editing by Paul Carrel and John Stonestreet)
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