European service industries, the largest part of the economy, expanded at a slower pace in March, adding to signs that concerns about unemployment and terrorism are deterring consumers from increasing spending.

　　An index based on a survey of 2,000 purchasing managers compiled for Reuters Group Plc by NTC Research Ltd fell to 54.4, the lowest since September last year, from February's 56.2, according to a Reuters report. A reading of more than 50 shows expansion. The median forecast of 23 economists surveyed by Bloomberg News was for a reading of 56.

　　"Employment is stagnant, I see it every day here in Italy, and the situation is difficult all over Europe," said Fabrizio Fiorini, who helps manage the equivalent of US$14.5 billion at Aletti Gestielle SGR SpA in Milan. "It's difficult to expect strong consumer confidence or strong retail sales when things are like this."

　　European central Bank President Jean-Claude Trichet said the bank expects a "gradual" recovery from the weakest growth in a decade last year.

　　Leaving the ECB's benchmark interest rate at 2 percent, Trichet said the "weakness of private consumption" is one of the main risks to faster growth.

　　The drop in the services index was led by Spain, where terrorist attacks on March 11 killed at least 191 people in Madrid. The purchasing managers index in that economy, the fourth biggest in the euro area, plunged to 53.9 from 57. The March data were collected after the Madrid bombings.

　　The service indexes for Germany, France and Italy also dropped in March. In Germany, Europe's biggest economy, the reading fell to 53.2 from 54.1.

　　European monetary Affairs Commissioner Pedro Solbes said on Friday the European Commission is lowering its euro-area growth forecasts for this year to 1.7 percent from 1.8 percent because household spending is struggling to pick up.

　　Persistently high unemployment is discouraging consumers from increasing purchases. German joblessness, due to be released today, probably rose by 15,000 in March, the median forecast of 31 economists surveyed showed.

　　The jobless rate in the euro countries remained at 8.8 percent in February, the 12th consecutive month at that level. Alitalia SpA, Italy's largest airline, said last week its 2003 pretax loss almost doubled because of strikes and the firm's failure to cut costs as sales declined.

　　"The ongoing weakness of consumer spending, the lack of any improvement in unemployment and the continued weakness of consumer and business confidence" are hitting services, said Adam Chester, chief economist at HBOS Plc.

　　The recent data "were in some respect mixed," Trichet said at a press conference at the ECB on Thursday, after the bank left its main lending rate at 2 percent. "It doesn't lead us to change our overall assessment of a gradual recovery."

　　(Bloomberg News)