GLOBAL ECONOMY-Euro, US business gains, price pressure builds

* European business surges, but inflation pressure builds

* Signs of life in euro zone periphery emerge

* Labor market recovery continues across major economies

* U.S. services sector grows at faster pace in Feb

(Rewrites, adds U.S. data)

By Andy Bruce and Leah Schnurr

LONDON/NEW YORK, March 3 (Reuters) – U.S. services sector
growth hit a fresh 5-1/2-year high in February and Europe’s
private sector surged near that rate, suggesting a strong start
to the year for most of the world’s major economies.

The latest batch of purchasing managers’ indexes (PMI)
released on Thursday also point to fast-building inflationary
pressures.

Soaring oil and commodity prices have pushed prices up
across industrialized nations. The European Central Bank may
hike interest rates next month, far earlier than markets
expected, though any rise would not signal the start of a
series of increases, President Jean-Claude Trichet said.
[ID:nLDE7220KJ]

The latest PMIs showed euro zone firms passing on costs to
customers at a faster rate last month, while prices paid by
companies in the U.S. services sector rose to the highest level
since September 2008.

The Institute for Supply Management said its index of
national non-manufacturing activity rose to 59.7 from 59.4 in
January. The reading came in just above forecasts for 59.5 and
was the highest level since August 2005.

“It is consistent with other measures of economic activity
that shows the economy gaining more momentum in 2011,” said
Eric Green, chief economist and head of rates strategy at TD
Securities in New York, of the U.S. data.

The euro zone economy grew 0.3 percent in the fourth
quarter, according to new official figures released on
Thursday. PMI compiler Markit said the latest data suggest much
faster growth in the current quarter of around 0.8 percent.

Overall, the Markit Eurozone Composite PMI rose to 58.2 in
February from 57.0 the previous month — its highest level
since July 2006 and its 19th month above the 50 mark that
divides growth from contraction.

PMIs showed strong growth in individual euro zone
countries, with the Irish services PMI hitting a seven-month
high and Spanish service sector firms showing their first
expansion in six months. [ID:nSLASDE7Q8] [ID:nSLA2EE7QF]

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Global and euro zone services PMI graphic:

http://r.reuters.com/vax38r

U.S. services sector graphic: http://r.reuters.com/rez38r

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

In Asia, where the service sector takes a much smaller
piece of the economic pie, Indian firms showed strong growth
and there were also signs of mounting inflation pressure as the
services PMI hit its highest in seven months. [ID:nBMA009510]

Growth declined, however, among Chinese and British
services businesses last month.

LABORED EXPANSION

Apart from China, the PMIs showed employment growth
continuing in service sector companies across the world, albeit
at still fairly modest levels in Europe.

In the 17-nation euro zone, job hiring across the private
sector hit a post-recession high as the composite PMI jobs
index showed employment expanding for the 10th month in a row.

In the U.S., the services report’s employment component
rose to 55.6 from 54.5, its highest level since April 2006.
Economists said the figures, which mirrored a series of strong
employment numbers through the week, support expectations of
strong U.S. job growth in February. The government will release
its closely-watched nonfarm payrolls report on Friday. For a
preview, see [ID:nN01163324]

“Going forward, we continue to expect the greatest
employment growth will be concentrated in the service sector,”
Wells Fargo wrote in a note.

In Britain, where inflation is running double the Bank of
England’s two percent target, the employment component of the
PMI survey dropped again. [ID:nLDE7220UW]

“(This) supports our view that the Labour market simply
isn’t strong enough to push through sharply higher wages that
would risk second round price effects and therefore prolonged
above target inflation in the medium term,” said James
Knightley, economist at ING.

Employment in the Chinese services sector — which
comprises only around a quarter of the manufacturing-based
private economy — fell in February as the PMIs there showed a
slowdown in new business growth. [ID:nTOE722020]

The February HSBC PMI for Chinese services dipped slightly
to 51.9 from 52.0 in January, although it showed growth overall
and its business optimism hitting a six-month high.
(Additional reporting by Karen Barttell; Editing by Andrew
Hay)