By Jurjen van de Pol Jan. 4 (Bloomberg) -- Europe’s manufacturing industry expanded at the fastest pace in 21 months in December after a pickup in global trade helped the euro region emerge from the worst recession in at least six decades. An index of manufacturing, based on a survey of purchasing managers in the 16-nation euro area, rose to 51.6 from 51.2 in November, London-based Markit Economics said today. That was in line with an initial estimate released on Dec. 16 and was the highest since March 2008. A reading above 50 indicates expansion. European companies are boosting output and investment after governments around the world injected billions of dollars into markets to support the recovery. While confidence in the economic outlook improved in November, exports are threatened by the euro’s strength and rising unemployment may undermine consumer spending. “It looks like manufacturing will continue to expand in the coming months as companies replenish stock, led by Germany and France,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “The risk of a decline may occur in the middle of the year as the effect of stimulus measures wears out.” The euro was higher against the dollar after the data, trading at $1.4383 at 10:39 a.m. in London, up 0.4 percent on the day. The yield on the German 10-year benchmark bond rose 0.1 basis point to 3.39 percent. Covered Bonds Governments around the world have spent $2 trillion to fight the recession and the European Central Bank has purchased covered bonds and flooded markets with cash to encourage lending. State incentives contributed to the recovery of auto sales from a global decline caused by the recession. General Motors Co.’s Opel unit sold 31 percent more cars in Germany in 2009, reaching a four-year high, as the government’s “cash-for- clunkers” incentive helped boost demand. Manufacturing activity in the U.K., the largest market for euro-area goods, increased to the strongest in more than two years in December, data showed today. Chinese factory activity expanded by the most in five years in December, supporting estimates that growth has accelerated to more than 10 percent in the world’s third-biggest economy. U.S. manufacturing probably expanded at a faster pace in December, capping a 2009 rebound that helped pull the U.S. out of the worst recession since the 1930s, economists said before a report today. European Goods While the European Union forecast the euro-zone economy to grow 0.7 percent this year, the euro’s 15 percent gain against the dollar since mid-February is threatening to curb a recovery and undermine earnings by making European goods more expensive abroad. ECB Governing Council member Nout Wellink said last month that the strong euro is threatening the economy of the Netherlands, the region’s second-largest exporter. The European Commission said on Dec. 21 that further appreciation of the currency may pose a “serious concern” for euro-area nations with more-open economies. An index of manufacturing in Germany, Europe’s largest economy, rose to 52.7 last month from 52.4 in November, Markit said today. The December reading was below the initial estimate of 53.1. An index for France rose to 54.7 from 54.4, while the one for Italy increased to 50.8 from 50.1. A gauge of services in the euro-area economy rose to 53.7 in December from 53 in the previous month, with the composite index of both industries rising to 54.2 from 53.7, according to an initial estimate released last month. Markit is scheduled to publish the final report for December on Jan. 6. To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net.

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