Euro zone business activity showed surprising strength in August despite firms raising prices, a survey showed, potentially weakening expectations for two more rate cuts from the European Central Bank this year.
However, the recovery was mixed as a strong rebound in the bloc's dominant services industry offset a deeper downturn among manufacturers.
HCOB's preliminary composite Purchasing Managers' Index, compiled by S&P Global, bounced to 51.2 this month from July's 50.2, moving away from the 50 mark that separates growth from contraction.
That confounded expectations in a Reuters poll for a dip to 50.1 and beat even the most optimistic prediction for 50.8.
The rebound in activity came even as firms in the 20-country currency union raised prices at a faster pace. The composite output prices index climbed to 52.9 from 52.1.
An unexpected rise in July euro zone inflation, a resilient labour market and steady economic activity could make ECB policymakers cautious.
Having reduced the deposit rate in June, policymakers paused in July although a Reuters poll published last week suggested there would be two additional cuts this year.
A PMI covering the services industry soared to 53.3 this month from 51.9, beating a poll prediction for no change.
While some of that activity was driven by services firms reducing backlogs of work, overall demand improved. The new business index rose to a three-month high of 51.3 from 50.8.
The manufacturing PMI dipped to an eight-month low of 45.6 from July's 45.8. Still, an index measuring output nudged up to 45.7 from 45.6.
Optimism among factory managers waned again and they reduced headcount at the fasted rate since November. The manufacturing employment index fell to 46.6 from 47.0.
