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* March index rises to 60.6, reversing Dec downturn
* View of economy better, job prospects brighter
* Personal finances under cosh
DUBLIN, April 11 (Reuters) - Irish consumer sentiment rose to a five-month high in March on signs of an improving job market, a survey showed on Wednesday, but the revival in domestic demand that the country is hoping will pull it out of its debt spiral remained elusive.
The morale boost also reflected a sense that fears of a major escalation of the euro zone debt crisis had receded, according to the survey - compiled well before the latest bout of market unease centred on Spain's deficit-reduction programme.
A relatively benign start to 2012 helped push the KBC Bank Ireland/ESRI Consumer Sentiment Index higher in each month of the first quarter and it rose to 60.6 in March.
That was up from 57.0 in February and 49.2 in December, when the reading nosedived by 11 points, the largest monthly drop in over a decade, on fears of a Europe-wide economic meltdown.
"The fact that the (euro zone) ... collapse threatened late last year did not materialise is probably the key element in the recent turn in sentiment but a steady stream of new job announcements may also be playing an important role," said Austin Hughes, economist at KBC Bank Ireland.
Irish unemployment, among the worst in the European Union, is at a stubbornly high 14.6 percent but official figures last month showed employment rose for the first time in four years in the final quarter of 2011.
Major job announcements have tended to outweigh large-scale layoffs since then. EBay Inc's payment service PayPal said in February it would hire 1,000 new workers in Ireland over the next four years, the biggest job announcement by a single company since the financial crisis began.
Although Ireland's export-led economy returned to growth on a gross domestic product (GDP) basis last year, the domestic economy remains under pressure and March's survey reflected a view of the economy as a whole rather than any improvement in personal finances.
Ireland, hailed by creditor states as a poster child among the euro zone's trio of bailed-out countries, needs a contraction in personal consumption to bottom out next year to give it the growth it needs to eat in to a debt mountain forecast by the government to peak at 119 percent of GDP next year.
With a weakening of two of the three sub-indexes relating to household finance, Hughes said the downbeat attitude among consumers looked set to continue for the time being.
"Irish consumers are not quite as gloomy as they were at the peak of the crisis but they continue to see the major obstacles that preclude a return to solid growth in economic activity and incomes," he said.
"Until a notably clearer upswing in activity and employment takes hold and promises the prospect of stronger household incomes, Irish consumer sentiment and spending are likely to remain subdued."