LONDON, Nov 5 - Business activity in the euro zone's dominant services sector surged to a near three-year high in October as businesses and consumers grew more confident about spending, a survey of 2,000 companies showed on Wednesday. The headline index in the survey jumped to 56.0 in October from 53.6 in September, well above the 54.1 consensus forecast and showing the fastest rate of service sector growth since December 2000. The sector covers companies from airlines to cleaning services and accounts for around two-thirds of the euro zone economy. The survey has shown that it slipped into contraction in February but growth has picked up steadily since July. "It's got to be good news about domestic demand levels within the euro zone," said Luke Thompson, senior economist at NTC Research which compiles the survey for . "Confidence is returning to businesses and consumers and more and more firms are increasing their investment spending." The pace of growth picked up in all five countries covered by the survey - Germany, France, Italy, Spain and Ireland -- and the upward jump in the level of the business activity index was the second biggest in the five-year history of the survey. Thompson said growth was unlikely to accelerate so fast in coming months, but added: "We can be relatively confident we'll see growth sustained close to this level in coming months." The global economic recovery of the past few months has been led by the United States, where the comparable index compiled by the Institute for Supply Management will be published at 1500 GMT. It is forecast to ease to 63.0 from 63.3 in September.
JOBS AND PRICES
In the euro zone, the new business index also showed the strongest growth since December 2000, at 55.5 in October from 53.6 in September. Job security is key to encouraging consumer spending and the euro zone survey showed service sector employment growing in France, Italy and Spain. However, job cuts in Germany kept the overall employment index below the 50 level that divides growth from contraction, at 48.5 in October from 47.7 in September. There were some signs of reviving price pressures as services companies reported the highest rise in their costs in six months, driven by energy prices and higher wages. This will reinforce expectations that the European Central Bank has finished cutting interest rates and will hold its benchmark refi rate at 2.0 percent when it meets on Thursday. However, NTC said its euro zone input price index remained below the survey average, at 54.6 from 53.9 in September, while competition is still forcing service companies to cut their own prices. The prices charged index slipped to 48.1 from 48.5 in September with only Spain recording a slight rise in charges. Some German firms said they were having to cut their charges for customers outside the region to compensate for the strength of the euro currency, although this was helping to hold down the cost of imported commodities. Business optimism slipped a little but remained above the survey's long-term average. The expectations index, based on whether companies expect business to be better or worse in 12 months time, remained well into positive territory at 68.3 from 69.8 in September. Of the major economies, Germany remained the weakest but still recorded its fastest growth rate since December 2000, with the main index rising to 53.7 from 52.4 in September. The French index surged to 59.9 from 55.6, while the Italian index rose to 55.7 from 53.1.//www.reuters.com