Service-sector setback surprise

European manufacturing and service-sector companies' activity levels unexpectedly shrank in June, leading to further worries that an expected interest rate rise would hurt the economy.

The Purchasing Managers Index for the eurozone came in below 50 points for the first time in more than five years. Any score below 50 marks a decline in activity.

RBS economist Jacques Cailloux said: "The European Central Bank is taking an unprecedented risk with euro-area growth by raising rates. The data clearly show that growth will be weaker than the ECB expects."

Meanwhile, the Ifo study in Germany found the country's "business climate" declined sharply in May.

Traders still think the ECB will raise rates, but economists said a long series of hikes was increasingly unlikely.

European central bankers are concerned about inflation but critics point out that a sharp economic slowdown would put the brakes on price rises.