Mr Schroeder is likely to take comfort from the latest figures

The Federal Labour Office said the seasonally adjusted jobless total fell to about 4.4 million in September, down by 14,000 from the previous month.

The unadjusted total fell by 107,000 to 4.2 million.

The decline, which wrong-footed analysts' forecasts of a slight increase, took the seasonally adjusted unemployment rate to 10.5%, down from 10.6% the previous month.

The figures are likely be seized on by German Chancellor Gerhard Schroeder as a sign that the economy is turning the corner after two years of stagnation.

Mr Schroeder, who has staked his political credibility on reversing a sharp rise in unemployment, is struggling to push through welfare reforms aimed at encouraging firms to hire more staff.

Not over yet

However, economists said last month's dip in unemployment reflects the limited impact of recent labour market reforms rather than a genuine increase in job creation.

The reforms include reduced unemployment benefits and efforts to beef up the country's network of job centres.

Analysts added that German economic growth remains too weak to prevent further rises in unemployment in the months ahead.

"We think average unemployment for 2004 will be higher than 2003," said Andreas Rees at Hypovereinsbank.

"The economic impulses are just too weak."

The gloomy prognosis was confirmed by Federal Labour Office chief Florian Gerster, who said German companies were unlikely to start taking on more workers until next year.

"In 2003 we are still in choppy seas... In 2004 we will not, on average, see a breakthrough either," he said.

"Only in the course of the year will things begin to point up and growth will reach a point at which jobs start to be created."