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Where to Stay in Algarve Region

We are thinking of spending two nights in the Algarve region in December. Which town would people recommend staying in while we explore the region via car? Does anyone have hotels they would recommend?

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Lagos is a good place to stay - with wonderful beaches, the famous Ponta de Piedade (rocks) and the large Meia Praia beach. A little train goes to Silves, Faro and the eastern Algarve. I liked the Hotel de Lagos in the city center, with beach club and extra pool at Meia Praia.