The euro zone continued to enjoy its strongest spell of growth since the first half of 2011, with business activity in the area only slightly lower than February's 32-month high, marking the ninth consecutive month of growth.
France posted the biggest jump in the euro zone, showing the largest monthly improvements since August 2011. Germany's private sector continued to grow in March, albeit at a slower rate than the previous month.
(Read more: Euro zone business activity strongest in 32 months)
The Purchasing Managers Index for the euro area as a whole came in at 53.2, only a fraction down from last month's reading of 53.3. The stabilization of the job market contrasted markedly with the steep rate of job losses this time last year.
The largest gain in backlogs of work in France since August 2011 suggests employment could start rising again in the country in April and the rate of job losses, which eased in March, showed a near-stabilization of the French job market, chief economist at Markit, Chris Williamson said.
Germany, in contrast, saw output growth slow to a four-month low, easing in both manufacturing and services. The rate of expansion nonetheless remained solid, said Williamson, finishing off the best quarter of growth since the second quarter of 2011.
"Germany looks set to have grown by 0.7 percent in the first three months of the year, spearheading the region‟s upturn despite its PMI slipping lower in March. However, perhaps the best news this month is the sign of the region‟s upturn spreading to France," he said.
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German business activity fell from the 33- month high reached in February to a reading of 55.0 in March. Companies in the goods producing sector reported the slowest rise in output since November and the private sector reported a moderation in growth of incoming new business.
Excluding France and Germany, the rest of the euro zone saw output and new orders rise for the eighth month running.
Activity in France, the euro zone's second-largest economy, outstripped estimates as new business orders flooded in after months of consistently weak data. The composite output index rose to 51.6, up from 47.9 in February.
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Both manufacturing and services delivered strong growth figures in France, with growth of new work in the manufacturing sector picking up to a 34-month high, partly boosted by a faster rise in new export orders.
Backlogs of work in the French private sector rose for the first time in six months during March, said Jack Kennedy, senior economist at Markit in a statement.
"If activity growth can gain some traction in the coming months then we could also see some improvement on the employment front, which would deliver a timely boost to confidence."
—By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave