By Maria Martinez

BERLIN (Reuters) - Business activity in Germany's private sector rose at the quickest rate for ten months in March, amid a first increase in manufacturing production for almost two years, according to a survey published on Monday.

The HCOB German flash composite Purchasing Managers' Index, compiled by S&P Global, rose to 50.9 in March from 50.4 in February, its highest since May last year and above the 50.0 threshold that separates growth from contraction.

Analysts polled by Reuters had forecast a reading of 51.0.

"Economic growth in the first quarter looks promising, with the composite PMI staying above the expansionary threshold every month," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Furthermore, Germany approved last week plans for a spending splurge that aims to revive growth in Europe's largest economy and scale up the military.

Thanks to the fiscal package, the first quarter could mark the beginning of a more sustained recovery, de la Rubia said.

Although it remained in contraction territory, the manufacturing index improved to 48.3 from 46.5, beating expectations of a rise to 47.0 thanks to stronger demand.

"Manufacturers have ramped up production for the first time in nearly two years," said de la Rubia, attributing the uptick to an import boom from the U.S. and anticipated benefits from Germany's new infrastructure and defence package.

The services sector lost momentum, with the business activity index falling to 50.2 from 51.1, missing the forecast of 51.6 but still in growth territory.

Inflationary pressures eased, with input costs and output prices rising at their slowest pace since last October, the survey showed.

(Reporting by Maria Martinez; Editing by Toby Chopra)