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Falling energy costs cut euro zone factory prices

An employee at the Smart Cars factory is seen surrounded by engines as he works on the Smart Fortwo assembly line in Hambach, eastern France
An employee at the Smart Cars factory is seen surrounded by engines as he works on the Smart Fortwo assembly line in Hambach, eastern France

BRUSSELS (Reuters) - Euro zone factory prices fell for the first time in five months in November, pulled down by a slide in the cost of energy and giving the European Central Bank ample room to consider another interest rate cut.

Prices at factory gates in the 17 countries using the euro fell 0.2 percent in November from October, the EU's statistics office Eurostat said on Monday. Economists polled by Reuters had expected no month-on-month change in industrial producer prices.

Compared to the same month a year ago, the producer price index was up 2.1 percent in November, echoing consumer inflation that was steady at 2.2 percent in December and just above the ECB's target of close to, but not above, 2 percent.

Lower world oil prices have helped cut the cost of energy for industry and households in the euro zone since Brent crude came down from $120 a barrel in August to trade at around $110 a barrel towards the end of 2012.

Tensions between Iran and the West over Tehran's nuclear ambitions drove up the cost of energy last year, but the weak euro zone economy and falling U.S. net crude imports have tempered that. Brent crude was around $111 a barrel on Monday.

Investors and economists are looking to the ECB's monthly meeting on Thursday to see if the central bank hints at an interest rate cut early this year to reduce the cost of borrowing and help the euro zone's economy out of recession.

Inflation was stubbornly high for much of 2012 and complicated the ECB's monetary policy task, but is now more benign and most economists expect the Governing Council to cut its main interest rate by a quarter point to 0.50 percent, a new record low. That may not come this week, however.

"We expect this week's meeting to be relatively uneventful," UniCredit said in a note to clients. "The positive market mood and slowly improving cyclical conditions are likely to keep the ECB in wait-and-see mode."

Markets have rallied since U.S. lawmakers reached a last-minute agreement to avert tax hikes and spending cuts that had threatened the economy, while business surveys show the Chinese economy is growing strongly again.

For further details of Eurostat data click on: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

(Reporting by Robin Emmott; editing by Rex Merrifield)

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