The German employment situation remains bright

Companies continued to expand their workforces with 600,000 more jobs created than last year, it said.

The seasonally-adjusted jobless total fell 53,000 from October to 3.6 million, the statistical office said.

The positive labour market data should help boost optimism about the state of the German economy, analysts said.

The surprise drop in unemployment follows a survey earlier in the week suggesting German consumers were being hit hard by rising energy and food prices and were expecting to tighten the purse strings in the run up to Christmas.

The GFK market research group said its consumer sentiment index fell to a two-year low in December at 4.3, down from 4.9 in November.

The reading was the lowest since January 2006, despite a consistent decrease in the jobless rate since then.

Problems in the global financial markets, the rising oil price and strong euro - which is negative for European exporters - have heaped worries on the prospects for the health of Europe's biggest economy.

Cautious outlook

Data out this week showing German inflation at a 13-year high is an additional worry for consumers and businesses.

Observers say the European Central Bank will be concerned about rising prices as it tries to keep inflation under control across the eurozone, while supporting economic growth.

Preliminary official figures showed that inflation rose 3% in November from the previous year, the highest level since 1994, and a rise from 2.4% in October.

The downward trend in unemployment will help shoppers feel more confident to spend in the key Christmas shopping period, analysts say.