UPDATE 1-POLL-Euro zone Oct services PMI at 22-month high

Published: 04 Nov 2009 01:52:40 PST

LONDON, Nov 4 - The euro zone's dominant service sector expanded for the second consecutive month and at its fastest pace in 22 months, led by France, with new business growth also near a two-year high, a survey showed on Wednesday.

The figures will likely further convince the European Central Bank and financial markets that the 16-nation bloc has emerged from a deep recession.

Markit's final Eurozone Services Purchasing Managers' Index of around 2,000 companies ranging from hotels to banks, rose to 52.6 in October to its highest reading since December 2007, up from 50.9 in September.

The October figure was revised up from forecasts and a flash reading of 52.3 and marked the second consecutive month the index was above the 50.0 mark dividing growth from contraction.

Markets were unmoved on the data, with the euro holding earlier gains against the dollar.

The index was boosted by a surge in activity in France and continued growth in Germany while the Italian service sector grew for the first time in 23 months.

Spain was the only one of the big four euro zone countries whose sector continued to contract but at 47.7 the index was also at a 22-month high.

"France in particular is seeing services activity increase sharply to help drive the region out of recession, making up for some loss of momentum in Germany," said Chris Williamson at data provider Markit.

Across the Channel, the UK's service sector grew for the sixth month running and at its fastest pace since August 2007, boosted by a growth in new orders, despite recent surprise figures showing the country's economy continued to contract in the third quarter.

The euro zone survey showed the outlook for bloc is improving. The new business index rose to 52.7 in October, the highest since November 2007, above the flash estimate of 51.9 released last week and well above September's 50.7.

PRICES, EMPLOYMENT STILL FALLING

The figures followed similar data released on Monday that showed euro zone factory business activity expanded for the first time in 17 months during October.

Those combined rises took the Composite PMI up to 53.0 from 51.1 in September, in line with the flash estimate and expectations. That was the highest reading since December 2007.

The ECB has slashed rates to a record low of 1.0 percent and adopted a loose monetary policy in an effort to boost an economy that contracted for five consecutive quarters.

Economists polled by Reuters think the euro zone economy has turned a corner, predicting 0.4 percent growth in the third quarter just gone by and a slightly slower 0.2 percent in the October-December period.

Markit said the PMI number was consistent with quarterly GDP growth of around 0.4 percent.

"The accelerating expansion in October indicated by the PMI significantly boosts hopes that the euro zone economy can pick up further in the fourth quarter after an apparent return to growth in the third quarter," said Howard Archer at IHS Global Insight.

Prices companies charge, however, remain under pressure. The composite output price index rose to 44.3 from September's 43.5, signalling firms are still slashing prices to drum up business.

"Further steep job losses remain a concern, as does the need for companies to offer price cuts to win new business," Williamson said.

The composite employment index remained under 50 for the 16th month as firms continue to cut jobs to reduce their costs. Official data released last week showed unemployment reached 9.7 percent in September -- its highest since January 1999.

Italy's Banca Popolare Di Milano said last week it expects to make 515 redundancies while Deutsche Post plans to shed a further 400 jobs at its DHL express delivery unit, having already announced 560 job cuts in September.

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