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Euro zone business sees best month in two years in August: PMI

Steam rises at a coking plant at the steelworks of German steel maker ThyssenKrupp AG in Bruckhausen, a suburb of the western German city of
Steam rises at a coking plant at the steelworks of German steel maker ThyssenKrupp AG in Bruckhausen, a suburb of the western German city of

By Jonathan Cable

LONDON (Reuters) - Euro zone businesses had their best month in over two years in August as orders increased for the first time since mid-2011, a survey showed on Wednesday, suggesting the region's economy will grow slightly this quarter.

Markit's Eurozone Composite Purchasing Managers Index (PMI) rose to 51.5 last month from 50.5 in July. It was the highest headline figure since June 2011, albeit revised down a tad from an initial flash reading of 51.7.

The forward-looking new orders index rose to 51.0, the first time above the 50 mark dividing growth and contraction since July 2011, which will come as welcome news to European Central Bank policymakers meeting this week.

"The euro zone recovery is looking increasingly broad-based, with more sectors and more countries emerging from recession," said Chris Williamson, chief economist at data collator Markit.

"Although the picture is improving, the survey is still consistent with only very modest economic growth," he added.

Indeed, there are still major differences between Europe's two most important economies. The composite PMI for Germany, the euro zone's largest, jumped to a seven-month high of 53.5, but the French PMI dipped to 48.8 from 49.1.

Williamson said the euro zone composite PMI, compiled from a survey of thousands of companies across the 17-nation bloc and viewed as a good gauge of growth, suggested the euro zone economy would expand 0.2 percent in the current quarter.

That is in line with predictions for growth for the remainder of the year in a recent Reuters poll.

The euro zone escaped from a 1-1/2 year-long recession last quarter with 0.3 percent growth, pulled up by Germany and France.

The PMI covering the dominant service sector bounced to 50.7 from July's 49.8, the first time it has risen above the break-even point since the start of 2012. Businesses' optimism about the future also rose to a 17-month high.

But firms were not confident enough yet to start hiring again. They cut staff for the 20th consecutive month, and at a faster pace than in July.

"Ongoing job losses suggest the ECB's principal focus will be on reassuring markets that rates will not rise for the foreseeable future," Williamson said.

(Editing by Hugh Lawson)

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