Confidence improved for the fifth month in a row, the report by GfK market research institute showed, highlighting a consistently upbeat mood among consumers despite the headwinds of Europe's unresolved debt crisis.

The consumer sentiment indicator, based on a survey of 2,000 Germans, rose to 5.9 - the same point where it stood last April - compared with economists' forecast for a reading of 5.6.

"Private consumption can do what it's supposed to -- provide an important support for the economy this year," GfK said in a statement accompanying survey data.

"It is above all important that trust lost during the crisis is restored," it added. "Decisive and lasting action by policymakers would be a key way to win back trust."

Germany's export-driven economy recovered quickly from the 2008/09 financial crisis, but the outlook has darkened as euro zone debt worries have begun to weigh on the real economy.

Many economists expect at least one quarter of contraction in Germany as global demand falls and the region's debt crisis affects its key neighboring export markets.

Negotiations over how to save stricken euro zone member Greece from a messy default are still at an impasse, and worries about the solvency of some weaker periphery states remain a concern for investors.

But German consumers remain upbeat regardless, and surveys consistently point to private consumption as a bright spot that could weather any bad news, thanks to the solid job market.

With work the main concern for consumers, there is little to overshadow the mood; unemployment fell more than expected in December, putting the jobless rate at its lowest level since the Germany re-unification two decades ago.

(Reporting by Brian Rohan)

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