BERLIN (Reuters) - German private sector activity increased for a third straight month in February, a survey showed on Thursday, adding to signs that Europe's largest economy is rebounding after shrinking in the fourth quarter.
Markit's flash composite Purchasing Managers' Index (PMI) measuring growth in both manufacturing and services, which combined account for more than two-thirds of the German economy, stood at 52.7.
That was down from January's 54.4 but still above the 50 mark that separates growth from contraction.
"The early snapshot of February PMI data highlights that Germany remains on track for a return to gross domestic product (GDP) growth over the first quarter of 2013," said Tim Moore, senior economist at Markit.
"Despite the slight loss of momentum since January, the survey suggests that Germany can still be relied upon as an engine of growth for the euro zone."
The preliminary figures also showed the manufacturing sector expanded for the first time in a year this month, with the sector index edging up to 50.1 from 49.8 in January, although that was below a Reuters consensus forecast for 50.5.
Markit chief economist Chris Williamson said the positive PMI surveys for January and February pointed to a 0.4 percent increase in Germany's first-quarter gross domestic product.
Germany's economy put in a strong performance in 2010 and 2011 despite the euro zone crisis engulfing many of its euro zone peers, but growth slowed last year and economic output even shrank by 0.6 percent in the fourth quarter.
Recent data has shown the German economy is picking up after it shrank 0.6 percent in the fourth quarter, with investor morale rising to its highest in nearly three years, exports, orders and output rising, and unemployment falling.
February's flash PMI survey showed factory output was in positive territory for a second straight month in February as their order books expanded at the fastest rate since May 2011 and new contracts from abroad hit their highest level in 22 months, helped by improved appetite from Asia.
Manufacturing firms also got a boost from a sharp drop in input prices, which combined with a modest rise in output prices reduced pressure on their operating margins.
Manufacturing contributes around 21 percent of Germany's gross domestic product, according to World Bank figures.
The PMI survey showed the services sector expanded in February, albeit at a slower pace than last month. The sub-index tracking the sector dipped to 54.1 from 55.7 in January.
Williamson said the slowdown was a blip, adding that a jump in service providers' business expectations to 58.5 in February, its highest level since June 2011, from 55.7 last month, suggested firms expected an improvement ahead.
New contracts in the services sector rose only marginally, pushing backlogs of work lower. Service providers took on some new employees but their operating margins were squeezed as input prices rose more sharply than output prices.
Reporting by Michelle Martin; Editing by Gareth Jones and Hugh Lawson