(Adds comment from Nahles, context and graphic)
By Michelle Martin
BERLIN, April 1 German unemployment fell for a fourth consecutive month in March, data showed on Tuesday, highlighting the strength of the job market in Europe's largest economy and boding well for expectations that domestic demand will drive growth this year.
The number of people out of work decreased by 12,000 to 2.901 million, data from the Labour Office showed. The mid-range forecast in a Reuters poll had been for a drop of 10,000.
"Good news all round," said Christian Schulz, economist at Berenberg Bank. "The fact that unemployment just continues to go down reflects the strength of this recovery."
The jobless rate held steady at 6.7 percent after the reading for February was revised down from 6.8 percent. That was lower than the 6.8 percent consensus forecast in a Reuters poll.
"The positive development of recent months is continuing. The signs, both seasonal and economic, point to growth," said Labour Minister Andrea Nahles.
Such data makes Germany the envy of other euro zone states such as Greece, where the jobless rate hit a record high of 27.5 percent in the last quarter of 2013.
Germany's unemployment rate is considerably lower than the euro zone average, where the jobless rate was at 11.9 percent in February, data from Eurostat showed on Tuesday.
"The German labour market is well on track and that raises the risk the labour market is getting a bit tighter, so there's a chance this will lead to higher wage increases," said Schulz, adding that strikes by pilots and public sector workers pointed to the employees' strength in wage negotiations.
A strong labour market, combined with moderate inflation and low interest rates which encourage consumers to spend rather than save, should boost private consumption in Germany.
That was borne out by data on Monday showing retail sales rose for a second straight month while last week a survey showed German consumer morale held steady at its highest level in more than seven years.
The government is relying on domestic demand to prop up growth this year as exports are expected to drag.
Other backward-looking hard data has been largely upbeat, showing imports, exports, industrial output and orders rising. But data published on Tuesday showed growth in the manufacturing sector slowing and engineering orders falling.
Leading forward-looking sentiment surveys have taken a turn for the worse of late, with business morale and investor sentiment weakening due to the Ukraine crisis.
(Additional reporting by Annika Breidthardt and Reuters TV; Editing by Stephen Brown)