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Euro zone factory growth sluggish in October as prices fall: PMI

A visitor takes pictures at the engine manufacturing unit, of the new Mercedes AMG GT super sports car, during a factory tour for journalists at the Mercedes AMG headquarters in Affalterbach near Stuttgart, September 9, 2014. REUTERS/Kai Pfaffenbach

By Jonathan Cable

LONDON, Nov 3 (Reuters) - Euro zone manufacturing activity expanded slightly slower than first thought last month as further discounts at the factory gate failed to drive up new orders, a business survey showed on Monday.

A second month of price cutting, alongside only tepid expansion in Germany - the euro zone's growth engine - and contractions in France and Italy, will be disconcerting for the European Central Bank as it battles to prevent deflation.

Economic growth stalled in the second quarter. With inflation at just 0.4 percent in October, the ECB is facing pressure to introduce more stimulus.

Markit's final October manufacturing Purchasing Managers' Index was 50.6, beating September's 50.3 but shy of an earlier flash estimate of 50.7. October marked the 16th month the index has been above the 50 line that separates growth from contraction.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good indicator of growth, rose to 51.5 from September's 51.0, although that too was lower than the flash reading, which came in at 51.9.

"The performance of euro zone manufacturing remained broadly flat at the start of the final quarter," said Rob Dobson, senior economist at Markit. "Manufacturing is therefore unlikely to provide any meaningful boost to the currency union's anaemic GDP growth."

The latest PMI survey suggested this month will probably not be much better as orders fell, backlogs were run down and stocks of finished goods built up. The new orders subindex was 49.5, barely above the flash and September reading of 49.3.

"Perhaps most worrying is the trend in new orders, a key bellwether of future output growth, which declined for the second month running," Dobson said.

"It is hard to see any significant near-term boost to performance."

(Editing by Hugh Lawson)