Downturn in euro zone business activity eases in Feb -PMI

LONDON (Reuters) - The downturn in euro zone business activity eased in February as the dominant services sector broke a six-month streak of contraction, offsetting a deterioration in manufacturing, a survey showed.

HCOB's preliminary composite PMI, compiled by S&P Global, rose to 48.9 this month from January's 47.9, ahead of expectations in a Reuters poll for 48.5 but marking its ninth month below the 50 level separating growth from contraction.

"There is a glimmer of hope as the euro zone inches towards recovery. This is particularly noticeable in the services sector," said Norman Liebke, economist at Hamburg Commercial Bank.

Optimism improved and firms increased headcount at the fastest pace since July in a sign they expect momentum to continue. The employment index climbed to 51.2 from 50.1.

The services PMI jumped to 50.0 from January's 48.4, far exceeding the poll expectation for 48.8.

But again, as in January, there were signs of inflationary pressures with both services input and output prices indexes rising. The output price index rose to a nine-month high of 56.9 from 56.3.

This may worry European Central Bank policymakers who held interest rates at a record-high of 4% last month and reaffirmed their commitment to fighting inflation even as investors bet on lower borrowing costs this year.

The downturn in the manufacturing industry deepened this month with its PMI dropping to 46.1 from 46.6, confounding expectations in a Reuters poll for a rise to 47.0. It has been sub-50 since July 2022.

An index measuring output, which feeds into the composite PMI, fell to 46.2 from 46.6.

"The manufacturing sector is the drag on the European economy. That is clearly demonstrated by the sharp decline in production and the drag on new orders," added Liebke.

(Reporting by Jonathan Cable; editing by Christina Fincher)