Businesses in the 16 countries using the euro saw activity improve to the highest level in six months, a survey showed on Thursday, fuelling hopes the bloc's recession has bottomed out.

The eurozone's purchasing managers' index (PMI), compiled by data and research group Markit, rose to 40.5 points from 38.3 points in March, according to a first estimate.

Although the figure remained well below the key 50-point threshold indicating a contraction in private sector activity, it beat economists expectations for a rise to only 39 points and marked a six-month high.

"The increase in the eurozone PMI surveys in April provides some early hope that the region will contract much less sharply in the second quarter than in first quarter and fourth quarter last year," said Ben May at consultants Capital Economics.

The separate PMI index for the eurozone's vast service sector also gained ground, rising to 43.1 points from 40.9 in March.

Meanwhile, the struggling manufacturing sector saw an improvement, with its index rising to 36.7 points from 33.9.

"The first signs of improvement in eurozone business cycle are starting to emerge," said economist Marco Valli at Italian bank Unicredit.

"In April, both the factory and services PMI rose significantly more than expected, strengthening the view that the recession troughed in the first quarter."

Europe is mired in its worst recession since World War II with the International Monetary Fund forecasting on Wednesday that the eurozone economy will contract by 4.2 percent this year.

Adding to the emerging signs of improvement, a separate report from the Eurostat official EU data agency showed that factory orders fell less than expected in February.

New industrial orders fell 0.6 percent in February from January, bringing the drop over 12 months to 34.5 percent, the European Union's Eurostat data agency said.

Economists had expected orders would fall 2.5 percent over one month and 34.9 percent over one year.

Economists said that while data were beginning to offer a glimmer of hope, economic activity was likely to remain at depressed levels.

"The improvement in the April manufacturing and service sector purchasing managers' surveys is encouraging, and it adds to the increasing signs that eurozone contraction is starting to moderate," said economist Howard Archer at consultants IHS Global Insight.

"Nevertheless, activity is still contracting markedly, relapses remain highly possible and actual recovery still looks some distance away," he added.

source: (publsihed 23/04/2009)