The directive, approved by the German cabinet in March, calls for deposits of 25 cents ($0.25) for smaller disposable containers and 50 cents for cans and bottles above 1.5 litres, starting in 2003. Deposits are returned when the bottles and cans are disposed of in special recycling machines.

One maker of such machines, Norway's Tomra Systems Inc, saw its shares shoot up 18.5 percent to 64.0 Norwegian crowns after the ruling, far outpacing a 3.4 percent rise of the region's Stoxx Nordic index.

Tomra has said Germany represented its best growth prospect.

Hans Neskvern, an analyst at Nordea Securities in Oslo, said the court ruling had reduced political and legal uncertainties, although the potential of the German market was not clear.

"A German recycling system is still not fully discounted in Tomra's stock price," he said.

The measure has long sparked opposition among retailers and beverage manufacturers but the government says it is necessary because the percentage of refillable cans and bottles has fallen below a minimum target level set in 1997.

The 1997 law requires that 72 percent of all beverage containers sold should be returnable, but government officials said that target was no longer being met.

Michael Scherer, head of the brands and packaging association for German brewers, told Reuters the constitutional court's ruling had not come as a surprise and that the industry would still challenge the law in the administrative courts.

"You're looking at introduction costs of at least 1.4 billion euros and running costs per year of 0.9 billion borne by the industry," Scherer said in a telephone interview.

"There could also be lost income of three to four billion euros if people are paying more for their drinks."

Environment Minister Juergen Trittin, a member of the Green Party, who are junior coalition partners in government, has been pushing for the introduction of this system for almost a year.

Environmental bodies applauded the decision saying it supported their campaign to clear three billion cans and bottles from Germany's streets.