The eurozone's economic recovery show signs of losing momentum while global financial turmoil is already taking its toll on the services sector, a closely watched survey has suggested.

Economic growth in the 13-country bloc remains robust, according to purchasing managers' indices released on Friday. But manufacturing output is expanding at the slowest pace since December 2005, while service sector optimism about future trends has dropped sharply and is the weakest since March 2003.

The results could serve as a warning for the European Central Bank, which is keeping its options open on its next interest rate move. Clear signs of a weakening in eurozone growth on top of continuing financial market turmoil may persuade the Frankfurt-based institution to shelve a quarter percentage point rise to 4.25 per cent in its main interest rate, which had been pencilled-in for September.

The ECB would also face political attacks if it went ahead with a rise. Nicolas Sarkozy, France's president, said the central bank had to take account of global financial market conditions. "Can we deprive ourselves of the rate weapon in the face of a crisis like the current one," a spokesman quoted him as saying.

The purchasing managers' indices came at the end of a busy week for the ECB, which pumped €40bn ($54bn, £27bn) into the three-month money market in an attempt to alleviate difficulties faced by banks in securing money other than at short maturities. But three-month rates rose again on Friday.

After a sluggish first half this decade, eurozone growth rebounded dramatically in 2006 and, at least until recently, the underlying trend this year appeared strong. Friday's purchasing managers' indices for August pointed to little if any immediate impact of financial market turmoil on actual activity. The "flash" composite index, covering manufacturing and services, fell only slightly to 57.2, from 57.5 in July - within the narrow range in which it has moved over the past year.

But the indices suggested recent financial market developments had clashed with a so-far modest economic slowdown resulting from a stronger euro and higher interest rates.

At the same time, service sector confidence "was hit hard by financial market developments, suggesting that contagion to the real economy remains a real risk", said Jacques Cailloux, economist at the Royal Bank of Scotland, which publishes the indices with NTC Economics. "It seems advisable for the ECB to move into a wait-and-see mode," Mr Cailloux added.

So far the ECB has not had any concrete evidence that the eurozone economy will be hit by financial market turmoil - but has not ruled out the possibility. A growing number of economists see at least some impact as inevitable.


At the same time, the purchasing managers' indices suggested that inflationary pressures may have abated, with prices charged to final customers increasing at the lowest rate this year.