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Latest data point to eurozone downturn

Tuesday, March 05 11:33:26

France, Spain and Italy dragged the euro zone into a deeper downturn in February, according to business surveys that showed the chasm between these countries and prosperous Germany widening yet again.

While British services companies had a slightly better month than expected, today's purchasing managers' indexes (PMIs) showed deepening fractures running through the European economy.

The divide between Germany and France, the euro zone's two biggest economies, grew to its widest since the currency union's inception in 1999.

The PMIs reflected how euro zone businesses were faring mostly before the inconclusive outcome of Italy's general election, which unsettled international financial markets.

"Two months into 2013, we've been somewhat disappointed with the euro zone economy's progress. The PMIs again reaffirm that," said Victoria Clarke, economist at Investec in London.

"Germany's doing a bit better than the rest of the pack, but in general, there's no real sign there of stabilisation, or of the contraction at least bottoming out."

Markit's Eurozone Composite PMI, a broad gauge of activity at thousands of companies across the 17-nation bloc, fell to 47.9 in February from 48.6 in January.

Although that was a little better than a preliminary reading of 47.3, it was still well below the 50 mark dividing growth from contraction - as the index has been for just over a year.

Euro zone retail sales for January, showing a 1.2 percent rise, were much better than expected, although economists cautioned that the underlying picture was still very weak.

British retail sales also grew at their strongest annual rate in almost two years last month.

The euro rose slightly against the dollar in response to the data. European stock markets also rallied on Tuesday, although led by strong bank results.

Britain's services PMI, which accounts for the bulk of its economy, hit a five month-high of 51.8 last month from 51.5 in January, beating the median forecast of 51.0 in a Reuters poll.