The number of Germans out of work fell by far more than expected in December, according to figures released yesterday, offering hope to new Chancellor Angela Merkel, who has declared fighting unemployment her top priority.

The federal labour office said the seasonally adjusted jobless total fell by 110,000 to 4.638 million, the eighth fall in nine months.

The jobless rate dipped to 11.2 per cent, the lowest level in a year, from 11.4 per cent.

"The development of the labour market is heading in the right direction and gives us confidence for 2006. The reform of the labour market and its organisation is working," labour minister Franz Muentefering said in a statement.

Dr Merkel's cabinet is set to hold a special two-day meeting early next week to agree a package to boost sluggish growth and employment, including a €25 billion investment programme and a reduction of non-wage labour costs.

Economists welcomed the December jobless figures, but played down prospects for a strong sustainable recovery in the German labour market, one of Europe's weakest.

The surprisingly large drop in December's adjusted total was partly due to mild weather earlier in the month when the data was collected, allowing outdoor activity such as construction work to continue for longer.

The labour office said the normal seasonal reduction in activity seemed to have been shifted from November-December to January.