The manufacturing sector in the euro zone contracted in December, with new orders, output, and employment levels falling for the fourth consecutive month.

The Reuters Eurozone Purchasing Managers' Index fell to 48.4 in December from 49.5 in November, going against analysts expectations of a 0.2 rise.

The 50 mark in the index divides growth from contraction.

Last month's decline was the steepest fall in the eurozone manufacturing index since January last year.

"The modest recovery in manufacturing seen earlier in the year has run out of momentum," said NTC Research, which compiles the survey.

"The PMI was dragged down by a slowdown in output growth to near stagnation, an increase in the number of job losses, and the sharpest drop in new orders since January."

Europe's woes were echoed in the UK, where the manufacturing sector shrank for the first time in five months in December, the Chartered Institute of Purchasing and Supply said.

The US Institute for Supply Management report, which recorded a level of 49.2 in November, is due at 1500 GMT on Thursday.

Regional breakdown

The euro zone is being weighed down by the weakness of the region's biggest economy, Germany, the survey showed.

Germany's rating fell to 46.9 from 49.0 as manufacturers cut jobs for the nineteenth month, while output slipped and new orders dropped.

Export orders also fell, reflecting the strength of the euro, which rallied 17% in 2002 to $1.03 when the survey was conducted.

French manufacturing contracted for the third consecutive month -edging down to 48.7 from 49.6 in November, while the Italian index crept up to 51.1 from November's 51.0, after 12 months of growth in orders.

While the strong euro has slowed export orders, it has also cut the cost of raw materials, which slipped to 50.8 in December from November's 50.9.