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BERLIN (Reuters) - Germany's private sector expanded for the first time in eight months in December as the services sector rebounded, a survey showed on Friday, suggesting the economy may have avoided a contraction in the last quarter of 2012.
Markit's composite Purchasing Managers' Index (PMI), which measures activity in both manufacturing and services, rose to 50.3 in December from 49.2 the previous month, coming in just above the 50 mark that separates growth from contraction.
The reading adds to signs of optimism in Europe's economic powerhouse, where recent data has shown business morale and analyst sentiment improving, unemployment remaining close to post-reunification lows and industrial orders jumping, although output and consumer morale have dropped.
Business activity in the services sector grew at its fastest rate since April, with the index rising to 52.0 in December from 49.7 the previous month. It remained below its long-run average of 52.9, however, in a sign of the toll the euro zone crisis is taking on Germany.
"A return to growth among Germany's service providers helped lift the private sector into expansion territory during December, despite another reduction in manufacturing output over the month," said Tim Moore, senior economist at Markit.
Markit's manufacturing PMI, published earlier this week, showed factory activity shrinking for a 10th straight month as production dropped and new orders fell.
Germany's economy held up relatively well during the first two years of the euro zone crisis but growth slowed in 2012 and many economists expect a fourth quarter contraction, especially given a slump in October industry output and a narrowing of the trade surplus to its lowest level in over half a year.
But the December PMI survey contained some bright spots, with new work in the services sector rising to its highest level since March in a sign that demand is stabilising.
Staffing levels climbed at their fastest pace since August, with service providers that took on extra workers pointing to increased business activity and long-term expansion plans.
A subindex measuring business expectations in the services sector jumped to 50.1 in December from 45.4 the previous month, its highest level since August.
That tallies with the Ifo index, a key barometer of economic health in Germany, which showed morale at German businesses rising in both November and December.
"Sentiment was neutral about the year-ahead outlook for business activity, as worries in the financial intermediation sub-sector offset pockets of optimism elsewhere in the service economy," Tim Moore said.
Backlogs of work fell for a 10th straight month, albeit at their slowest pace since May, as companies facing weak new order levels turned to completing existing work instead.
Input prices rose at their fastest pace since May last month as service providers faced higher fuel and utility costs. Output prices rose at a slower pace than input prices, squeezing firms' operating margins.
Data earlier this week showed Germany's annual inflation rate rose for the first time in four months in December, breaching the European Central Bank's target threshold for the broader euro zone of 2 percent.
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Writing by Michelle Martin in London; Editing by Hugh Lawson