Closely watched gauges of analysts' and investors' sentiment about the German and wider eurozone economies improved on Tuesday, though the ZEW research institute said worries about German banks form a cloud on the horizon.

The ZEW said its index of economic sentiment for Germany rose by 5.7 points to 6.2 points. That was less than the 7.0 reading predicted by Credit Suisse analysts but well above the consensus 4.3 forecast.

The eurozone economic sentiment gauge climbed 6.9 points to 12.3 points, above the 10-point-reading the Credit Suisse analysts had expected, while the current situation index for Germany rose 4.4 points to 59.5, the highest reading since January.

But investors' and analysts' assessment of the current euro zone situation deteriorated by 2.3 points to a reading of minus 12.8 points.

News of the broadly improving sentiment represents a muted echo of Monday's Sentix index of investor confidence, which put euro zone sentiment at a post-Brexit high.

ZEW Professor Achim Wambach said the improved economic sentiment is "a sign of relatively robust economic activity in Germany." But he said worries about the German banking sector "are currently a burden on the economic outlook."

Deutsche Bank (DB - Get Report) , which was this summer labelled by the International Monetary Fund as the single biggest contributor of systemic risks to the financial sector, has become a conduit for those worries after sweeping restructuring efforts were complicated by the threat of a $14 billion Department of Justice fine for misselling mortgage-backed securities around a decade ago.

Capital Economics senior European economist Jennifer McKeown called the German ZEW economic sentiment index "broadly encouraging," though she said it still signals a slowdown in German GDP growth from an estimated 1.7% in the third quarter to about 1.0%.

The euro was recently down 0.48% against the dollar at $1.1086. German 10-year government bond yields were down 1 basis point at 0.04%.