MELBOURN (Bloomberg) -- Australia's business confidence climbed to the highest level in more than two years in May, adding to signs of accelerating economic growth.

The sentiment index rose 2 points to 15 from April, seasonally adjusted, according to a survey of 600 companies released by National Australia Bank Ltd. in Melbourne.

Strengthening business confidence prompted National Australia to boost its estimate for 2007 economic growth to 4 percent from 3 percent. Figures last week showed the economy expanded at the fastest pace in three years in the first quarter and the jobless rate fell to a 33-year low, suggesting the central bank may need to increase interest rates. “Higher underlying growth momentum adds to the risk of a late 2007 interest-rate rise,” said Alan Oster, chief economist at National Australia, the nation's largest bank. “The Reserve Bank will be extremely sensitive to any signs of increased wage or price pressures.”

The confidence index rose to the highest level since January 2005. An index in National's survey that measures actual sales, hiring and profits in May, known as the business conditions index, gained 1 point from the previous month to a reading of 17. -------------------18-year high

The Australian dollar bought 84.35 U.S. cents in Sydney from 84.38 cents just before the report was released. The currency reached an 18-year high of 84.76 cents last week. The yield on the 10-year government bond was unchanged at 6.23 percent. The S&P/ASX 200 index rose 0.7 percent to 6272.2, led by shares in miners and banks.

Asia's appetite for resources has stoked commodity prices and fueled confidence and investment at Australian miners and energy producers. Their expansion has sparked a jobs surge that has boosted consumer spending. The jobless rate fell to 4.2 percent in May as employers hired four times as many workers as economists expected. “Continuing strong economic outcomes have boosted business confidence,” Oster said. “Retail has been the big improver over the last six months.”

Australia's economy expanded 1.6 percent in the first quarter from the previous three months, stoked by increased consumer and business spending. Company profits surged 7.6 percent in the quarter, the fastest rate in almost two years. --------------------Extra sales

“The economy is strong and consumer confidence is high, that's translating into extra sales,” said Susie Thompson, Sydney-based marketing manager at Herringbone Classic Clothing Sydney Pty, which has 10 retail outlets in Australia.

Faster growth may prompt the central bank to raise its benchmark interest rate. Governor Glenn Stevens left the overnight cash rate target unchanged at 6.25 percent last week after three increases in 2006.

Thirteen of 23 economists surveyed by Bloomberg News this month expect higher rates by the first quarter of 2008. The yield on the October 30-day interbank futures contract is at 6.48 percent, indicating traders see a 90 percent probability of a rate increase by October.

There are few signs that the inflation rate and wages growth are surging yet, providing time for the central bank to watch whether accelerating growth fans price increases.

Retail-price inflation slowed to a quarterly rate of 0.4 percent, business survey showed, compared with 0.7 percent last month. Purchase-cost inflation, a measure of prices paid by businesses, eased to a quarterly rate of 0.4 percent in May from 0.8 percent in April. --------------Wages growth

Wages rose at a seasonally adjusted quarterly rate of 1.3 percent, quickening from April's 1.1 percent increase, report showed. The annual pace of wages growth remained unchanged at 5.1 percent. “Despite stronger activity, there is little sign of accelerating inflation,” Oster said. “With capacity utilization at high levels and the non-farm economy accelerating, the risks for further wages growth remains real.”

An index of employment in National Bank survey rose 1 point to 10 in May. Companies' capacity utilization rate fell to 83.2 percent in May from 83.3 percent in April.