Euro zone businesses started 2018 on decade high - PMI

(Reuters) - Euro zone businesses had a much better start to 2018 than anyone polled by Reuters expected, ramping up activity at the fastest rate since the middle of 2006, a survey showed on Wednesday.

The upturn was driven by a strong performance in the bloc's dominant service industry, where new business flooded in at a rate not seen in over a decade. That will cheer the European Central Bank as it moves towards tighter monetary policy.

IHS Markit's composite flash Purchasing Managers' Index (PMI) for the euro zone jumped to 58.6 this month, its highest since June 2006 and confounding the median forecast in a Reuters

poll for a dip to 57.9 from a final December reading of 58.1.

Anything above 50 indicates growth and the preliminary reading was higher than any estimate given by the 33 economists Reuters polled.

"What's not to like -- this is a collection of really nice strong readings. It's a terrific start to the year for the euro zone," said Chris Williamson, chief business economist at HIS Markit.

Williamson said if maintained the PMI pointed to first quarter GDP growth of 1.0 percent, much faster than the 0.6 percent predicted by a Reuters poll last week.

In other good news for ECB policymakers, who have failed for years to get inflation up to where they want it, price pressures increased. The output prices sub-index bounced to 54.6 from

53.2, a level not seen for almost seven years.

"We have seen ECB rhetoric change over the course of the past year, turning increasingly to trying to gauge how strong inflationary pressures are, and these data will add to that hawkish rhetoric," Williamson said.

The PMI covering the bloc's dominant service industry bucked a forecast for a slight dip to 56.4, instead rising from December's 56.6 to 57.6, the highest since August 2007.

That increase came after firms reported new business accelerating and the sub-index was 57.2, up from 56.7 and its highest since August 2007.

Manufacturers, however, performed less well than predicted.

The sector's PMI fell to 59.6 from December's 60.6 and was below all 42 forecasts in a Reuters poll whose median was 60.3. An index measuring output which feeds into the composite PMI

suffered a similar fate, slipping to 61.1 from 62.2.

The three-month average of the headline number, ironing out fluctuations over the Christmas period when numbers are more volatile due to factory closures, was nevertheless the highest

on record.

Also suggesting the fall might be a blip, an index measuring future output -- or expectations -- rose to a survey high of 67.9 from 67.6.

((Reporting by Jonathan Cable; Editing by Catherine Evans))