French industry confidence unexpectedly picks up in September

PARIS (Reuters) - French industrial sentiment unexpectedly picked up in September along with broader business confidence, an official survey showed, raising hope of a rebound by the euro zone's second-largest economy this quarter from stagnation in the spring.

The improvement in France, the first euro zone country to release business confidence data for September, was also a good sign for growth in the bloc, Morgan Stanley said in a note.

"We'll have to wait until tomorrow's PMIs and the German Ifo on Monday to have a better gauge of how euro-area sentiment fared into the autumn, but for now the French outcome is a modestly positive indication," Morgan Stanley economist Carmen Nuzzo said.

The industrial sector confidence index released by statistics office INSEE on Thursday rose to 103 from 101 in August, confounding expectations from economists in a Reuters poll for a flat reading.

In a positive sign for output in the coming months, executives' personal production expectations rose sharply to the highest in six months and returned above the long-term average.

"Despite the security scares of the last two or three months, production has picked up, investment has picked up," Philippe Darmayan, president of the French federation of industrial groups GFI, told a news conference on the sector.

"A positive momentum is taking hold even if it is never as much as we would like."

Sentiment in the dominant service sector also improved this month, with the index rising to 102, the highest since July 2011, the data showed. Overall, the composite business indicator rose to 102.

But the broader-based index remained within a range it has not escaped since November 2015, a month marked by Islamist attacks in Paris that killed 130 people. The carnage dealt a serious blow to France's large hotel and restaurant sector.

Although the sub-index for that sector improved in September to 96 after an 11-point collapse in August following another militant attack in Nice the month before, it remained below its long-term average.

Weakness was also prevalent among wholesalers, especially in the agricultural sector, where some indicators have never been worse since the survey started in 1979, INSEE said.

This year's weather-hit French wheat harvest could be the worst in 30 years, compounding structural problems in other agricultural sectors such as the beef and milk industries.

For business morale details from INSEE: http://link.reuters.com/pav79t

For industry morale details from INSEE: http://link.reuters.com/raw62v

For a graphic: http://link.reuters.com/nut32t

(Reporting by Michel Rose and Leigh Thomas; editing by Geert De Clercq/Mark Heinrich)

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