By Jonathan Cable
LONDON, (Reuters) - Private sector growth across the euro zone slowed more sharply than predicted this month, a survey showed on Tuesday, but stayed strong even though firms increased prices at the steepest rate in over six years.
IHS Markit's euro zone Flash Composite Purchasing Managers' Index for October, seen as a good guide to economic growth, fell to 55.9 from September's 56.7, still comfortably above the 50 level that separates growth from contraction.
October's reading was below all expectations in a Reuters poll, which had forecast a more modest dip to 56.5, but was still much higher than it has averaged in recent years.
"It's a carrying on of the recent story where everything is going along quite nicely, it's more positive news for the euro zone economy," said Andrew Harker, an associate director at IHS Markit.
"France and Germany were both the growth drivers. Outside of that the rate of expansion eased off a bit but was still solid."
Harker said the PMI, if maintained, pointed to fourth quarter economic growth of 0.6-0.7 percent, faster than the 0.5 percent a recent Reuters poll predicted.
The robust growth came as firms jacked up prices. An output price index climbed to 53.3 from 52.7, its highest reading since June 2011.
Inflation has stubbornly refused to reach the European Central Bank's 2 percent target ceiling but a recent Reuters poll predicted policymakers will say on Thursday they plan to start trimming monthly asset purchases in January.
A PMI covering the bloc's dominant service industry sank to 54.9 from 55.8, missing all expectations in a Reuters poll that predicted a reading of 55.6.
But suggesting firms think the slowdown won't last, they hired staff at the second fastest rate in over nine years. The employment index rose to 54.3 from 53.7 and has only been higher once -- in March -- since early 2008.
Manufacturing growth accelerated and the PMI came in at 58.6 compared to September's 58.1, its highest since February 2011.
It was forecast at 57.8 and was better than anyone polled by Reuters predicted.
An index measuring output, which feeds into the composite PMI, dipped to 58.7 from 59.2.
Indicating the momentum might continue, new orders picked up. The sub index was 58.7 compared to September's 58.5, matching a more than six-year high set in June.
(Editing by Catherine Evans)
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