* Services PMI at 25-month high
* Manufacturing PMI grows at pace not seen in 21 months
* Firms continue to shed jobs
(Adds market reaction, analyst comment)
By Jonathan Cable
LONDON, Dec 16 (Reuters) - The euro zone's dominant service sector grew at its fastest pace in over two years during early December while the manufacturing sector grew at a rate not seen since March 2008, key surveys showed on Wednesday.
Markit's Eurozone Flash Services Purchasing Managers Index, made up of surveys from around 2,000 businesses ranging from banks to cafes, rose more than expected to 53.7 in December from 53.0 in November, its highest since November 2007.
That marks the fourth month the index has been above the 50.0 mark that divides growth from contraction, and was ahead of economists' expectations for it to hit 53.2.
"December's small increase in the euro zone PMI suggests that the economy has continued to recover, but at a modest rate. At this level, the index is consistent with quarterly gains in GDP of around 0.4 percent, in line with the rate seen in Q3," said Jennifer McKeown at Capital Economics.
Financial markets were little moved by the data.
The euro zone economy had shrunk for five consecutive quarters but returned to growth of 0.4 percent in the July-September period and is expected to grow 0.5 percent in the current quarter according to a Reuters poll.
The new business index climbed to a 25-month high of 53.0 from 51.2, a good sign that business activity is set to rise again next month as those orders are filled.
The euro zone manufacturing sector, which drove a large part of the return to growth in the third quarter, grew at its fastest pace in 21 months. The flash manufacturing index rose to 51.6 from 51.2 in November, pipping forecasts for 51.5.
The manufacturing output index rose to a 27-month high of 55.2 from 54.8 in November.
The backlogs of work index jumped to 51.9 this month from 50.2 in November, suggesting there was more demand than firms were currently able to meet.
The index was languishing at just 29.2 this time last year, the lowest in the survey's 12-year history.
The rise across the services and manufacturing sectors took the Composite index to a 26-month high of 54.2 from 53.7 in November, ahead of economists' expectations for 53.9.
REGIONAL REBOUND
Separate flash PMIs earlier showed Germany's service sector expanded much faster than expected while its manufacturing industry grew at its fastest pace since May 2008, and also at a better-than-expected rate.
France, the euro zone's second biggest economy, saw the pace of growth in its service sector slow from November's 3-year high while the rate of expansion in its manufacturing sector stalled at November's level.
While the euro zone situation may be improving, firms are still shedding jobs at a rapid pace to cut costs and the composite employment index remained negative for the 18th month at 46.5, though this was better than November's 44.9.
Official data released earlier this month showed unemployment remained stable at an 11-year high in October of 9.8 percent but the situation may be worse than reported -- German carmaker Porsche said this month it would extend short working hours until March 2010. Markit said there were reports of that being the case in the survey data they had collected in recent months.
"(The jobs index) should be higher, but maybe not above 50. Employment always lags GDP and EMU just came out of recession recently. If they are not above 50 by April I think growth forecasts will get revised down," said Stuart Bennett at Calyon. (Editing by Stephen Nisbet)