The euro zone's services sector powered to its strongest performance for six months in February, and rising confidence prompted companies to take on more staff, a major survey showed today.
The Reuters Eurozone business activity index rose to 51.5 in February, its second consecutive increase. In January, it had nudged back above the 50 dividing line between growth and contraction to 51.0. February's consensus forecast was 51.8.
Apparently shaking off the gloom that hit global business after the September 11th attacks, new business grew for the first time since last July with the index at 50.6 from 49.7 in January.
Companies also took on new staff for the first time since last September, with the jobs index at 50.9 from 49.7 in January.
"All the news suggests the market is likely to discount a greater degree of monetary tightening for this year," said Mr Klaus Baader of Lehman Brothers in London. "We expect the first increase in ECB rate cuts to happen in July." he said.
Financial markets are already pricing in a quarter percentage point ECB rate rise by June. Currency market reaction was muted with the euro steady around $0.8680. The euro zone index was followed by news of the equivalent survey in Britain, where the index rose to 52.1, its highest level for eight months, from 51.4 in January.
A similar survey of US non-manufacturing companies, compiled by the Institute of Supply Management, is due today and is expected to rise to 51.4 from 49.6 in January, showing optimism also returning in the United States.
European stock markets have rallied in recent days as investors, seeing improving economic sentiment over the past few weeks, started the move back into economy-sensitive technology, media and telecommunications stocks. Even the airline sector has started to reclaim some business.