Growth in Europe's dominant services sector shifted up a gear last month, showing that an economic recovery picked up speed as confidence soared and demand rose, survey data showed yesterday.

Surveys of service companies showed the sector expanded at its fastest pace since April 2002 in the euro zone and April 2000 in Britain.

The service sector accounts for about two-thirds of output in the region, spanning activity from airlines to restaurants and cleaning services.

The euro-zone business activity index rose further above the 50-line that divides growth from shrinkage to 53.6 in September from 52.0 in August, above the 52.5 forecast.

"\ looks very good, quite a bit above expectations," said Mr Mark Wall at Deutsche Bank in London. "It was \ in all the big countries... We expected a pick-up in growth in the third quarter and that seems to be what has happened."

The strength of the British index, up to 58.7 in September from 57.0 in August, raised the prospect of higher interest rates.

In the euro zone, France had the strongest growth in activity, but the about-turn in Germany's performance over the last two months was singled out by NTC Research, which compiles the European surveys.

In Germany, "there was also evidence... to suggest that investment spending was on the rise once again, as some modest degree of client confidence returned", NTC said.

The euro-zone new business index, at 53.6 in September, showed demand grew at the fastest pace in nearly two and a half years. In August the index stood at 51.8.

Growing confidence in the future of the global economic recovery pushed the business expectations index up about four points to 69.8 in September.

In Britain the expectations index, at 76.1 in September from 74.9, was the highest since May 2002 and the new orders index at 58.6, up from 57.5, was the strongest since August 1999. - (Reuters)