Sep.03 - The euro zone manufacturing sector contracted faster than previously thought last month. Attention now turns to the ECB's key meeting on Thursday for a way out of the debt crisis. Ciara Sutton reports.
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After a calm summer, Europe's holiday season ended with a bump as manufacturing output across the 17-country euro zone shrank again in August.
The sector contracted faster than previously thought, despite factories cutting prices.
What's more, the downturn that began in the smaller peripheral countries is now extending into Germany and France.
This grim news comes as the euro zone enters one of its most nail-biting weeks since the start of the debt crisis.
A European Central Bank news conference on Thursday could set the market tone for the rest of the year.
ECB Chief Mario Draghi has raised expectations with his pledge to do whatever is necessary to preserve the euro.
Goldman Sachs' Jim O'Neill suggests there is some reason for optimism.
(SOUNDBITE) (English) JIM O'NEILL, CHAIR OF GOLDMAN SACHS ASSET MANAGEMENT, SAYING
"Listen we've had a wall of worry throughout the whole summer. People were thinking it was all over in April as it was last year, and we've sailed right through it. And as the others have pointed out we've got a lot of issues coming up but each one is something to worry about until we get to the next one. But I think oddly that makes it quite easy for equity markets to rally. On balance I don't see any reason for that to change."
Hopes are high that the ECB will resume its debt-buying from the bloc's struggling economies like Spain and Italy.
But Mike Ingram from BGC warns such action is not a sure thing.
(SOUNDBITE) (English) MIKE INGRAM, MARKETS COMMENTATOR, BGC PARTNERS, SAYING
"To be honest with you I don't think that the three committees which are grinding out what can be done with the ECB have actually reached a final decision. And the other thing that I think is important to mention, Draghi said that I'll do whatever I can but consistent with the mandate of the ECB. And the mandate of the ECB is fairly prescriptive. So people need to bear that in mind."
The uncertainty is expected to continue next week when the German Constitutional court will vote on whether the European Stability Mechanism can go ahead.
The euro zone's rescue fund, is expected to work alongside the ECB by purchasing peripheral countries' bonds when they are first auctioned.
With the summer now over, Europe's leaders will be turning their attention to finding an equation that solves more problems than it causes.
Ciara Sutton, Reuters.
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