* Sales fall 1.6 pct on annual basis to 3-year low
* Joblessness holds households back even as climate improves
By Robin Emmott
BRUSSELS - Retail sales in the euro zone tumbled unexpectedly in December, the biggest drop in the Christmas period in three years, data showed Friday, with rising joblessness and stubborn inflation undercut signs of a stabilisation in Europe's economy.
Sales across the 17-nation single currency area fell 0.4 percent in December from November, well down from the 0.3 percent rise forecast by economists in a Reuters poll.
They were down by 1.6 percent on an annual basis, the European Union's statistics office Eurostat said.
That annual drop was the biggest since December 2008 when retail sales also fell 1.6 percent in the month at what turned out to be the start of the world's biggest post-1930s recession.
European households cannot yet be relied on to help the euro zone pull out of its latest slump. Joblessness reached a euro-era high of 10.4 percent in December, while inflation remains near recent peaks of 3 percent.
Even in Germany, the bloc's biggest economy, sales fell 1.4 percent compared with November and shoppers stayed away from the malls in France and Spain, where sales slid 0.3 percent and 0.8 percent respectively. Consumer confidence is also weak, despite rising slightly in January from a 26-month low in December.
We're not expecting any miracles from consumer spending this year, simply because we haven't got a high enough growth rate to generate jobs and stabilise the labor market, said Guillaume Menuet, an economist at Citigroup.
The question is to what extent households draw down their savings to maintain consumption, he said.
EU leaders at a summit Monday promised to free funds to promote jobs and try to revive the euro zone economy, a shift in their mantra that spending cuts are the only way to recover from the euro zone's two-year sovereign debt saga.
The European Central Bank's decision late last year to provide cheap three-year loans to banks has also helped to avert a freeze in lending that could have deepened the downturn.
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NOT SO WOBBLY?
In one hopeful sign, industry data and business surveys suggest the collapse in confidence last year has largely stabilised and Germany will probably avoid recession in 2012.
The euro zone's private sector economy snapped a four-month decline in January and expanded, albeit very weakly, according to a survey released separately Friday.
There's some momentum, as the first quarter is starting from a less negative footing from the fourth quarter of 2011, but it is not telling us there's going to be growth, just a stabilisation, Citigroup's Menuet said.
At the EU leaders' summit, the bloc's 27 countries risked sending a mixed message to households by signing up to a German-inspired pact for stricter budget discipline that could stifle policies aimed at sparking growth, economists say.
Belgium entered recession territory after two quarters of falling economic output at the end of 2011 and the wider euro zone is expected to struggle through a mild recession this year.
The International Monetary Fund forecasts a 0.5 percent contraction for the euro zone in 2012 that the Washington-based lender says could drag the world into recession.
High energy prices, pushed up by Iranian supply concerns, have also made life difficult for consumers.
Consumer price inflation in the euro zone remained at 2.7 percent for the second straight month in January, above the ECB's target of below, but close to 2 percent, which the Frankfurt-based bank judges to be right for price stability.
(Reporting By Robin Emmott. Editing by Jeremy Gaunt.)