European retail sales increased at the fastest pace in 2 1/2 years in December, signaling consumer spending is gaining strength in the 16 nations using the euro.

A gauge of euro-area retail sales increased to 52.9 this month from 51.3 in November, London-based Markit Economics said in a statement on its website today. That is the highest since May 2008, Markit said. The index is based on a survey of more than 1,000 executives and a reading above 50 indicates expansion.

The data “suggest that consumer-spending growth will accelerate in the final quarter of 2010, with German consumers leading the way,” Trevor Balchin, senior economist at Markit, said in the statement. The October-December period was “the best quarter in terms of monthly sales growth since the fourth quarter of 2006.”

Germany is powering the region’s recovery, even as governments across the region step up austerity measures, as reviving global growth boosts orders at companies including carmaker Daimler AG and encourages hiring. European confidence in the economic outlook improved to the highest in three years in November and could rise again this month, economists predict.

German retail sales increased for the third straight month in December, Markit said in today’s report. “The rate of growth eased slightly since November but remained sharp,” it said. French sales gained for a second month, while Italy experienced a decline.