BERLIN, Jan 2 (Reuters) - Collapsing orders sent Germany's manufacturing sector into its biggest contraction in more than 12 years in December, even though a slump in input costs allowed producers to cut their prices, a survey showed on Friday.
The headline index in the Markit Purchasing Managers' Index (PMI) for Europe's biggest economy fell to 32.7 in December from 35.7 in November. The fall took the index deeper below the 50 threshold separating contraction from expansion.
The reading, which showed a sector contraction for the fifth month running, was the lowest since the series began in April 1996 and was below a flash estimate of 33.5 released on Dec. 16. A sub-index on new orders also fell to a series record low.
"There is no doubt that the German manufacturing sector nosedived in the final three months of 2008, and the December data suggest that firms are suffering more than at any other time since reunification," said Markit economist Tim Moore.
"Rapidly falling input prices seem to be the symptom rather than the cure for manufacturers," he added.
A sub-index on input prices fell to 30.8 from 39.2 in November. The survey also showed that a drop in output prices in December was the most marked for five years.
The slump in costs chimed with other recent data showing price pressures have eased in the euro zone, where inflation plunged by 1.1 percentage points to 2.1 percent in November.
European Central Bank policymakers have said there is still room for the bank to cut interest rates, though some have talked down major cuts. Last month, the ECB slashed its main interest rate by 75 basis points to a 2-1/2 year low of 2.50 percent.
Anecdotal evidence from the PMI survey suggested that a rapid contraction of demand in the auto sector was a key factor leading to lower workloads in December, Markit said.
In November, German carmaker BMW reported a 25.4-percent drop in group vehicle sales, and rival Mercedes-Benz said sales at its cars division fell 25.2 percent.
Reflecting weaker demand, a PMI output sub-index fell to its lowest level since the series was first compiled in April 1996. (Writing by Paul Carrel; editing by Tony Austin)