Euro zone manufacturing sector expands at fast pace

London: The euro zone's manufacturing sector had its best month in two and a half years in February but the dominant service sector activity expanded at a slower pace than expected, a survey showed yesterday.

Markit's Eurozone Flash Services Purchasing Managers' Index, made up of surveys of around 2,000 businesses ranging from hotels to banks, fell to 52.0 in February from 52.5 in January.

That marks the sixth month the index for service sector was above the 50.0 mark that divides growth from contraction but was short of a Reuters poll consensus of 52.5.

However, the euro zone manufacturing sector, which drove a large part of the return to growth in the third quarter of last year, grew at its fastest pace in 30 months.

The flash manufacturing index rose to 54.1 in February from 52.4 in January, smashing forecasts for a slight rise to 52.6, while the output index jumped to 56.9 this month, the highest since April 2007, from 56.0 in January.

The euro zone economy escaped from its worst post-war recession in the third quarter of 2009 but is still seen just bumping along in 2010, a view the latest PMI figures support.

The composite index, made up from the services and manufacturing sectors and often used to predict overall growth, held steady at 53.7 this month, pipping expectations for 53.5.

"A surge in growth of manufacturing, driven by rising exports and inventory rebuilding, offset a worrying slowdown in the already meagre rate of expansion seen in the service sector," said Chris Williamson at data provider Markit.

"So while the recovery continued, consistent with GDP rising by approximately 0.4 per cent in the first quarter so far, it was unbalanced and concerns persist about its sustainability."

The trend in manufacturing looks set to continue with the new orders index rising to a three-year high of 56.5 from 56.0 in January -- double the 28.2 it was at this time last year.

Markit said the euro trading around nine-month lows against the dollar had boosted exports while firms rebuilding inventories were also benefitting manufacturers.

But firms were forced to discount prices to attract business and output prices in the service sector continued to contract in February. At 46.1 the index spent its 16th month below 50 but was up from January's 45.4.

Earlier flash PMIs showed the German manufacturing sector expanded at its fastest pace since June 2007 but again, like the euro area as a whole, the rate of expansion in its service sector slowed.

In France the PMIs for both sectors showed expansion, but at half the pace clocked in November.

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