German exports fell at their fastest rate in nearly three years in December and imports also unexpectedly dropped, suggesting Europe's bulwark economy could have contracted more than forecast in the fourth quarter of 2011.

Data from the Federal Statistics Office showed seasonally-adjusted exports fell 4.3 percent, the steepest decline since the height of the financial crisis in January 2009. The median forecast in a Reuters poll was for a drop of just 1.0 percent.

A breakdown of year-on-year data showed exports to the euro zone dropping 3.3 percent, despite an overall 5.0 percent rise.

The drop in exports helped narrow the trade surplus to 13.9 billion euros from a revised 14.9 billion euros the month prior, missing a consensus forecast for a dip to 14.0 billion euros.

The European debt crisis is being coupled with a weakening of global demand, said Andreas Scheuerle at Dekabank.

The data from December means that the official fourth quarter estimate for an economic contraction of 0.25 percent needs to be revised downwards.

Germany's export-driven economy recovered quickly from the 2008/09 financial crisis, but the euro zone's debt troubles and a global slowdown have cast a shadow over the country's growth outlook.

A first official estimate for gross domestic product in the fourth quarter points to a slight contraction, but December data has been worse than expected.

Industrial output posted its biggest fall in December since the depth of the financial crisis at the start of 2009, the Economy Ministry said on Tuesday, underperforming forecasts by a wide margin.

Economists had hoped domestic demand would support the economy during this period of weakness and imports had been forecast to rise 0.6 percent, but they dropped by 3.9 percent.

Siemens AG said earlier this month it expected the economic environment to remain difficult as volatile financial markets hit the real economy and companies hold off on making major investments.

Nonetheless, forward-looking sentiment surveys say a German economic dip will be short lived. Business sentiment rose for the third month in a row in January, while consumer morale rose going into February, hitting a 10-month high.

Full-year figures showed German exports exceeding the key trillion euro mark in 2011, at 1.060 trillion euros. Imports also reached a record 902.0 billion euros.

The German trade balance rose to 158.1 billion euros in 2011 from 154.9 billion in 2010, contrasting strongly with Tuesday's data from France, the second biggest economy in the euro zone.

The French balance showed its trade deficit hitting a record high of just shy of 70 billion euros in 2011.

(Reporting By Sarah Marsh and Brian Rohan)

Germany