WRAPUP 1-European economy dashes expectations as morale sinks

* European business confidence buckles: falls in France, Italy, Germany and across 15-member euro zone

* Biggest fall in German business confidence since 9/11

* UK retail sales in biggest monthly fall on record

By Jonathan Cable

LONDON, July 24 (Reuters) - Europe's economy is taking a bigger hit than expected as the global credit crunch and rising costs erode corporate and consumer confidence, data showed on Thursday.

Surveys of German, French and Italian businesses all came in below consensus expectations, British retail sales took a record fall and optimism among euro zone service providers hit its lowest point in at least 10 years ECON.

German business sentiment suffered its biggest drop since the Sept. 11, 2001 attacks on the World Trade Centre, according to the closely-watched Ifo index.

"It's a horrible number," Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt, said of the main Ifo index which at 97.5 significantly undershot the Reuters consensus forecast of 100.0 and sent the euro <EUR=> down more than half a cent to a two-week low.