BERLIN, Nov 2 (Reuters) - Germany's manufacturing sector returned to growth in October after being mired in recession for more than a year, a survey showed on Monday.
The headline reading in a purchasing managers' index (PMI) compiled by Markit rose to 51.0 from 49.6 in September, breaking above the 50 mark that separates growth from contraction and almost matching a "flash estimate" of 51.1.
The reading was the first to show growth in the sector since July 2008, and stood at its highest level since June of last year. The index was driven higher by increases in output and new orders.
"The German manufacturing sector hasn't really looked back since staring into the abyss at the start of the year," said Tim Moore, economist at Markit. "The rise in the new orders index to a 26-month high suggests that the rebound has further to go."
The new orders index increased to 56.3 from 54.2 in September, just ahead of a 56.2 flash estimate. Manufacturers attributed this to improved confidence in the outlook for Europe's largest economy, while companies also noted that substantial price discounting supported sales in October.
New export orders increased solidly, boding well for the broader economy as Germany relies heavily on its export sector for growth.
The positive news on the manufacturing sector added to signs that the German economy is picking up after emerging from its deepest post-war recession in the second quarter.
German business sentiment edged up to its highest level in over a year in October and unemployment fell unexpectedly by 26,000 on the month, its fourth straight decline, as government measures to prevent lay-offs supported the labour market.
The PMI employment index for October, though still deep in negative territory, was its highest since November last year.
Economists expect joblessness to rise in the coming months and peak next year, but they have backed off from earlier doomsday scenarios that it could climb above 5 million.
A government subsidy scheme, known as "Kurzarbeit", that encourages companies to reduce the hours of their workers instead of firing them has prevented mass lay-offs during the deepest part of a sharp industrial downturn.
(Editing by Stephen Nisbet)