German jobless up for first time in nearly 3 years

By Holger Hansen

BERLIN (Reuters) - German unemployment rose by a bigger-than-expected 18,000 in December, the first increase since February 2006 and a signal that a three-year downturn in joblessness is ending in the face of economic turmoil.

The seasonally adjusted month-on-month rise was bigger than the 10,000 gain economists polled by Reuters had expected, and showed the recession in Europe's largest economy hitting the labour market at the start of an election year.

"The era of falling unemployment rates is now over for what will likely be quite some time," said Glenn Marci at DZ Bank.

The jobless figures helped pull down the euro from its session highs to trade around $1.3565 (0.91 pounds) at 9:19 a.m. British time versus $1.36 before Reuters reported the data from a source familiar with the numbers. The Labour Office later confirmed the data.

The jobless rise poses risks to Chancellor Angela Merkel's conservatives and her coalition partners, the Social Democrats, who face a federal election in September.

The ruling coalition has presided over a steady fall in unemployment since the last election in 2005, but the foreign demand that has fuelled export-driven growth in the German economy since then is fading fast.

Germany fell into recession in the third quarter of last year and leading economic institutes have forecast it will contract by 2 percent or more in 2009 -- the worst annual performance in the post-war era.

In a sign of how the fallout from the financial crisis is hitting German business, banking and real estate group Hypo Real Estate HRXG.DE said last month it planned to cut about 40 percent of its total workforce to reduce costs.