German manufacturing PMI rises to 2-month high ..

Manufacturing activity in Germany rose unexpectedly in December, rebounding from the previous month’s 28-month low, preliminary data showed on Thursday.

In a report, market research group Markit said that its preliminary German manufacturing purchasing managers’ index rose by 0.2 points to a seasonally adjusted 48.1 in December, up from 47.9 in November.

Analysts had expected the index to decline by 0.3 points to 47.6 in December.

A reading above 50.0 on the index indicates industry expansion, below indicates contraction.

Meanwhile, the report showed that service sector activity in Germany rose to a five-month high in December.

The preliminary services purchasing managers’ index rose by 2.4 points to a seasonally adjusted 52.7 from 50.3 in November. Analysts had expected the index to ease down 0.2 points to 50.1.

Commenting on the report, Tim Moore, Senior Economist at Markit said, “December’s flash PMI reading for Germany is a step in the right direction, but not enough to rescue what has been a subdued final quarter of 2011.”

“Higher services activity has meanwhile been a pillar of support to overall German output in recent months,” he added.

Following the release of the data, the euro remained higher against the U.S. dollar, with EUR/USD rising 0.31% to trade at 1.3024.

Meanwhile, European stock markets extended gains. The EURO STOXX 50 climbed 0.8%, France’s CAC 40 rose 0.85%, the FTSE 100 advanced 0.8%, while Germany's DAX jumped 0.9%.

EUR/GBP close to 10-month after Spanish debt sale ..

The euro was trading close to a 10-month low against the pound on Thursday, as fears over the debt crisis in the euro zone continued to dominate sentiment after last week’s European Union summit offered no hope of an immediate resolution.

EUR/GBP hit 0.8376 during European morning trade, the daily low; the pair subsequently consolidated at 0.8385, slipping 0.10%.

The pair was likely to find support at 0.8372, Wednesday’s low and a 10-month low and resistance at 0.8424, the session high.

The euro remained under pressure despite a stronger-than-expected investor demand at a Spanish bond auction earlier.

Spain’s Treasury sold EUR6 billion of medium-and-long-term bonds earlier in the day, far surpassing a target of EUR3.5 billion.

The country sold EUR2.5 billion of five-year bonds at an average yield of 4.02%, down sharply from 5.27% at a similar auction last month. Spain also auction EUR1.4 billion in ten-year bonds at a yield of 5.54%, compared to 6.97% at a November bond sale.

Earlier in the day, the European Central Bank’s monthly report said the debt crisis in the region still posed a substantial threat to the outlook for growth.

The report came after data showing that manufacturing activity in the euro zone rose unexpectedly in December, but remained in contraction territory for the fourth consecutive month.

A separate report showed that consumer price inflation in the euro zone remained unchanged at an annualized rate of 3% in December, in line with expectations.

Elsewhere, the euro pushed higher against the U.S. dollar, with EUR/USD adding 0.27% to hit 1.3018.

Also Thursday, official data showed that U.K. retail sales fell more-than-expected in November, as consumers reined in spending.