LONDON - European services and manufacturing output unexpectedly shrank in February as the eurozone economy struggles to rebound from a contraction in the fourth quarter.

A eurozone composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate on Wednesday. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.

Budget cuts by governments may curb the pace of Europe's recovery as countries across the region battle the sovereign-debt crisis. At the same time, China's manufacturing may shrink for a fourth month in February, indicating the world's second-biggest economy remains vulnerable to a deeper slowdown as Europe's crisis caps exports.

"We see some signs of stabilization but it's still too weak to conclude that we'll be able to avert a recession," Jens Kramer, an economist at NordLB in Hanover, Germany. "Germany and France helped counter some of the slack, but tougher consolidation measures in countries like Spain or Portugal will continue, which means that it will probably have a negative impact on the economic performance into 2013."

A gauge of eurozone manufacturing rose to 49 in February from 48.8 in January, Markit said. A measure of services fell to 49.4 from 50.4.

In Germany, Europe's largest economy, the nation's services and manufacturing expansion unexpectedly slowed. The German factory gauge fell to 50.1 from 51, while the services index declined to 52.6 from 53.7, according to a separate release from Markit. The composite index of both industries in Germany fell to 52.9 from 53.9 in January.

In France, an index of manufacturing rose to 50.2 from 48.5, while a services measure fell to 50.3 from 52.3.

Bloomberg News