Euro zone services revival drives activity in July but outlook clouded by Iran war, PMI shows

LONDON, Aug 5 (Reuters) - Euro zone business activity jumped to an eight-month high in July as a rebound in services joined a strengthening manufacturing sector, but the uncertain trajectory of the Middle East conflict continued to cloud the outlook, a survey showed.

The S&P Global Euro Zone Composite PMI - which combines services and manufacturing surveys - rose to 52.0 in July from the neutral mark in June, a tad above a preliminary estimate of 51.9. It was the first time in expansion territory since March.

Readings above 50.0 indicate growth in activity.

"July's final PMI adds to a picture of encouraging resilience of the euro zone economy amid the ongoing conflict in the Middle East, but also underscores how the business climate is being steered by the changing geopolitical landscape," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Overall new orders — a key measure of demand — rose at their fastest pace since November, driven by a rebound in services new business combined with a slight pick-up in factory order growth. Export orders remained weak although the pace of decline was the softest in just over a year.

The S&P Global Services PMI climbed to a five-month high of 51.7 in July from 49.4, just above a preliminary estimate of 51.6 and signalling the sector's first expansion since March.

July's upturn was broad-based across the euro zone. Germany recorded its first rise in private sector output since March while Italy and Spain both saw stronger growth. Spain stood out, posting its best performance in more than a year and a half. France remained the outlier, with activity continuing to contract, though at a slower pace.

Employment stabilised in July, ending a six-month run of job losses. Business confidence rose to a five-month high, though it remained below levels seen before the U.S.-Israeli attack on Iran in late February.

On prices, input cost inflation eased to a five-month low and output price inflation slipped to its softest since March, offering some relief to consumers and policymakers. Both gauges, however, remained elevated relative to historical survey averages.

Inflation across countries using the euro rose to 2.9% in July from 2.8% a month earlier, official data showed last week. The reading added to the likelihood of another European Central Bank interest rate hike which could add to pressure on demand as households curtail spending.

The ECB will lift its key deposit rate in September, a Reuters poll predicted last month.

(Reporting by Jonathan Cable)