Euro Zone Business Activity Unexpectedly Contracts in September

• Euro zone business activity contracted sharply and unexpectedly this month as the bloc's dominant services industry flatlined, while a downturn in manufacturing accelerated, a survey showed on Monday. The downturn appeared broad-based with Germany, Europe's largest economy, seeing its decline deepen while France - the currency union's second biggest - returned to contraction following August's Olympics boost.

• That fueled bets for more policy easing by the European Central Bank and the euro fell sharply.

• HCOB's preliminary composite euro zone Purchasing Managers' Index (PMI), compiled by S&P Global, sank to 48.9 this month from August's 51.0, below the 50 mark that separates growth from contraction for the first time since February.A Reuters poll predicted a modest decline to 50.5.

• Overall demand fell at the fastest rate in eight months. The new business index plunged to 47.2 from 49.1. A services PMI sank to 50.5 from 52.9, below all expectations in the Reuters poll, which had predicted a more modest decline to 52.1. Euro zone government bond yields tumbled on the data, with yields on German debt falling the most.

• Germany's economy contracted 0.1% in the second quarter and Monday's survey suggested it had extended its downturn in the third. A recession is normally defined as two consecutive quarters of contraction. "A technical recession seems to be baked in," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, forecasting Germany's economy would shrink by 0.2% this quarter.

(Source: Reuters)