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Jan 24 Reuters European stocks reversed early gains on Tuesday as betterthanexpected business activity data in the euro zone failed to excite investors worried about further interest rate hikes by the European Central Bank ECB.

The panEuropean STOXX 600 index dropped 0.1 despite a strong finish on Wall Street where battered technology stocks continued their rebound.

SP Global39;s flash Composite Purchasing Managers39; Index PMI climbed to 50.2 this month from 49.3 in December, adding to signs the downturn in the bloc may not be as deep as feared and that the currency union may escape recession.

While the bloc39;s dominant services index also surprised on the upside, factory activity still declined.

Manufacturing activity may have shrunk the least in five months, but the sector is still contracting, said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

The realisation is washing over investors that although this is more progress there is still a long way to go at a time when a hawkish ECB is preparing to hike rates further.

European stocks hit a ninemonth peak last week on hopes of a milder recession in Europe and smaller interest rate increases from the Federal Reserve.

However, hawkish comments from ECB policymakers have helped cement bets of two 50 basis point interest rate rises at each…