Euro zone business activity weaker than expected
German economy likely in recession, survey shows
Euro falls sharply on bets of further interest rate cuts

LONDON, Sept 23 Reuters Euro zone business activity contracted sharply and unexpectedly this month as the bloc39;s dominant services industry flatlined while a downturn in manufacturing accelerated, a survey showed on Monday.

The downturn appeared broadbased with Germany, Europe39;s largest economy, seeing its decline deepen while France the currency union39;s second biggest returned to contraction following August39;s Olympics boost.

That fuelled bets of more policy easing by the European Central Bank and the euro fell sharply, on track for its biggest daily fall against the dollar in more than three months.

HCOB39;s preliminary composite euro zone Purchasing Managers39; Index PMI, compiled by SP Global, sank to 48.9 this month from August39;s 51.0, below the 50 mark that separates growth from contraction for the first time since February.

A Reuters poll predicted a modest decline to 50.5.

As the Olympic flame was extinguished, so was euro zone optimism. The August uptick in the PMI was met by a sharp decline in September. This further fuels growth concerns in the bloc as inflation worries fade, said Bert Colijn, an economist at ING.

Overall demand fell at the fastest rate in eight months. The new business index plunged to 47.2 from 49.1.

A services PMI sank to 50.5 from 52.9, below all expectations in…