Euro zone factories enjoyed their strongest month since the middle of 2011 in January as new orders flooded in.

This prompted them to take on new staff for the first time in two years, business surveys have shown.

The increase was led by a sharp pick-up in Germany and a revival in the euro zone's periphery members, but a continuing downturn in France, the bloc's second-biggest economy, remained a drag on the region.

Markit's final euro zone Manufacturing Purchasing Managers' Index rose to 54 last month, beating an earlier flash reading of 53.9 and comfortably ahead of December's 52.7. The last time it was higher was in May 2011.

A reading above 50 indicates growth in activity, while a figure under 50 signals contraction.

The sub-index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic growth, rose to 56.7 from December's 54.9, in line with a flash estimate and its highest since April 2011.

"The euro zone manufacturing recovery gained significant further momentum in January, with final PMI readings for Germany, France and the region as a whole all exceeding the earlier flash estimates," said Chris Williamson, chief economist at Markit.

"Perhaps the most important development in the report is the further revival of manufacturing in the region's periphery," he added,.

Germany's PMI jumped to a 32-month high, but while France's rose to a 23-month peak it remained below the breakeven 50 mark.

New orders across the euro zone rose at their fastest pace in nearly three years and factories increased headcount to meet demand. The employment sub-index rose to 51 from 49.9, higher than a flash 50.7 and the first time above 50 for two years.

That will provide some cheer to the European Central Bank after official data on Friday showed unemployment across the bloc was stuck near a record high of 12% for the third month running in December.

However, manufacturers were unable to raise prices last month as fast as they did in December, which may support some fears of deflation in the region after news consumer price inflation dropped unexpectedly in January. 

Euro zone deficit shrinks to almost within EU limit in Q3

The euro zone's government deficit shrank for the third consecutive quarter in the three months to last September to near the European Union's official limit of 3% of economic output, Eurostat data showed today.

The seasonally adjusted government gap fell to 3.1% of gross domestic product (GDP) in the third quarter of last year from 3.3% in the previous period and down from 3.4% in the first quarter of 2013.

The 3.1% shortfall is the smallest since the third quarter of 2008, when it stood at -2.2% of the euro zone's economic output, according to Eurostat.

The narrowing of the deficit comes from total revenue rising to 47.1% of the GDP from 46.9% in the three months from April to June, with total expenditure flat at 50.2%.

The euro zone, which expanded to 18 countries when Latvia adopted the euro in January, is gradually recovering from its worst recession since creation of the euro in 1999, caused by a sovereign debt crisis that followed years of overspending.

The sharp reduction in government deficits is part of a plan to restore long-term sustainability of public finances and win back market confidence in euro zone government bonds.