Euro zone business growth loses momentum in Feb but remains strong - PMI

LONDON (Reuters) - Euro zone business growth has slowed more than expected this month but remains robust as higher prices and a stronger currency take a toll, yet firms are the most optimistic in at least 5-1/2 years, a survey showed.

The euro zone emerged as one of the best-performing major economies last year, and its businesses started 2018 by ramping up activity at the fastest rate in well over a decade.

But February's preliminary Purchasing Managers' Index (PMI) implied the blistering growth pace set in January, the fastest in well over a decade, has lost some momentum.

IHS Markit's composite flash PMI for the euro zone, seen as a good guide to economic health, fell to 57.5 this month, below all forecasts in a Reuters poll that had predicted a more modest dip to 58.5 from January's final reading of 58.8.

"We have been saying for a while it would be amazing if it could maintain such elevated levels, so some pullback was not altogether unsurprising. It is still a very elevated level," said Chris Williamson, chief business economist at IHS Markit.

Earlier data from Germany and France, the bloc's two biggest economies and the only ones that publish flash PMIs, showed business growth eased.

Williamson said that the bloc was heading towards its best quarter since the second quarter of 2016 and that the PMI pointed to growth in the three months to the end of March of 0.9 percent, much faster than the 0.6 percent predicted in a Reuters poll.

Firms shared his optimism - an index measuring where they think output will be in a year's time climbed to 68.3 from 68.0, its highest since IHS Markit started collecting the data in July 2012.

A PMI covering the bloc's dominant service industry matched the lowest forecast in a Reuters poll. It fell to 56.7 from 58.0, missing the consensus expectation for 57.6.

However, that weakening came as firms jacked up prices again, in welcome news for the European Central Bank as it moves to unwind its ultra-easy monetary policy.

The services output price index did fall to 52.8 but January's 53.6 was the highest reading since mid-2008. Since the start of the year the euro is up around 3 percent against the dollar, making the euro zone's exports less attractive.

"Although they weren't explicitly mentioned we can surmise that those factors are coming in to play. These will inevitably contribute to slower growth but at the moment there is no explicit factor we can put our finger on to say what has caused this slowdown," Williamson said.

Manufacturers also had a slower month than expected. The factory PMI dropped to 58.5 from 59.6, again matching the lowest forecast in a Reuters poll. It was expected at 59.3.

An index measuring output, which feeds into the composite PMI, sank to a four-month low of 59.5 from 61.1.

Adding to suggestions the strong currency may be having an effect, the export orders index - which does include trade within the bloc - fell to a seven-month low of 56.8 from 58.4.