Euro  zone economic sentiment took a turn for the worse as the new year got under way, according to European Commission data yesterday which suggested the bloc's economy faces an uphill struggle to recover.

An overall index of economic sentiment unexpectedly slid to 98.4 from December's revised 98.6, with consumer morale sagging for a fourth month to hit its lowest since May 1997 as households fretted over job cuts and possible war in the Gulf.

Firms, which had until recently proved more upbeat than consumers, also became gloomier. This comes at a time when some euro zone exporters are feeling the pinch of a rising euro.

The industrial confidence component of the index fell for the first time in five months, in line with the drop in a separate measure of business climate released simultaneously by the Commission.

"This data shows we are still bouncing along the bottom and there is a lack of momentum in economic activity," said Mr Luigi Speranza, economist at BNP Paribas in London.

"In the short term, we should continue to expect bad news."

Industrial confidence fell to minus 10 from minus nine in December, while consumer confidence fell for the fourth month running to hit a low of minus 17 from December's minus 16 - figures which were worse than economists' expectations.

The Commission's separate business climate indicator fell for the first time in five months in January, easing to minus 0.29 from the one-and-a-half- year high of minus 0.24 it set in December.

This was driven by a decrease in production expectations which could bode ill for industrial output in the coming months.

Brussels played down the significance of the reports and said it saw no reason to change its official forecasts, which are looking for the euro zone economy to grow by 1.8 per cent in 2003. - (Reuters)