German investor confidence surged to a three year high in March even as the political stalemate in Italy and the banking crisis in Cyprus continues to take its toll on the wider European economy.

The ZEW Centre for European Economic Research in Mannheim said its key index of investor and analyst expectations for the economy rose to 48.5 points in March from a reading of 48.2 points in February. The index of current conditions also advanced to 13.6 points from 5.2 points in the previous month, the institute said in a statement published Tuesday on its website.

"The financial market experts stick to their forecast: the economic situation in Germany is likely to improve over the next months," said ZEW President Dr. Clemens Fuest. "As before, the Eurozone debt crisis remains the biggest risk. This fact has been brought back to our attention over the last weeks."

"Economic expectations for the Eurozone have worsened in March," the statement said. "The respective indicator has decreased by 9.0 points to 33.4 points. The indicator for the current economic situation in the Eurozone remains almost unchanged at a level of minus 76.1 points (minus 0.5 points)."

German bund futures rose 39 ticks to a session high of 144.33 following the release. Benchmark 10-year bund yields fell 2 basis points to 1.383 percent.