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French business returns to growth in September on stronger services - PMI

PARIS (Reuters) - French business activity grew in September for the first time since early 2012, as a recovery in the service sector offset lingering weakness in manufacturing, a survey showed on Monday.

Stronger-than-expected service sector activity lifted France's composite purchasing managers index (PMI), covering more than 70 percent of the economy, to 50.2 from 48.8 in August, data compiler Markit said.

In a positive sign for the euro zone's second-biggest economy, the improvement brought the indicator above the 50-point threshold dividing expansions in activity from contractions for the first time since February 2012.

"The reassuring signal from the survey is that the underlying trend is one of improvement," Markit chief economist Chris Williamson said.

The services PMI rose to a 20-month high of 50.7 from 48.9, beating not only economists' average estimate for 49.3 but also the highest forecast of 50.0 in a Reuters poll.

However, the indicator painted a contrasting picture for the manufacturing sector where it eased to a four-month low of 49.5 from 49.7 August, missing economists' average forecast for 50.1.

While weaker production led to the fall in manufacturing activity, the flow of new orders grew for the first time since June 2011 with demand from abroad particularly strong.

Williamson said that bodes well for activity in the coming months, estimating French growth would accelerate from 0.1 percent in the third quarter to 0.3 percent in the final three months of this year.

The 2 trillion euro ($2.7 trillion) economy grew faster than expected in the second quarter with 0.5 percent growth, boosted by exceptional factors that may not persist into the current quarter.

"Much depends on what happens to inventories and government spending," Williamson said, citing two factors that helped lift the economy out of a shallow recession in the second quarter.

Having produced little growth since the 2008-2009 financial crisis, France is beginning to see tentative signs of recovery, although not enough for a rapid rebound.

President Francois Hollande's government reiterated its 2013 growth forecast of 0.1 percent this month but trimmed its 2014 estimate to 0.9 percent from 1.2 percent previously.

(Reporting by Leigh Thomas; Editing by Hugh Lawson)