Euro zone sentiment rises in October, inflation expectations drop

BRUSSELS (Reuters) - Euro zone economic sentiment improved more than expected in October, European Commission data showed on Thursday, mainly driven by stronger confidence in the retail and construction sectors, while the consumer inflation forecast dipped.

The overall economic sentiment rose to 105.9 this month from 105.6 in September, confirming the upward trend started in July and defying market expectations of a minor decline. A Reuters poll forecast the euro zone economic sentiment at 105.2 points in October.

The Commission's business climate indicator, which points to the phase of the business cycle, also defied market expectations and rose to 0.44 in October from a revised 0.36 in September, while forecasts pointed at a slight decline to 0.32.

Inflation expectations among consumers 12 months ahead dropped to 0.7 in October from 3.2 in September. But selling price expectations in industry improved to -2.4 from -3.3 in September.

Euro zone consumer prices in the 19 countries sharing the euro fell by 0.1 percent in the year in September, dipping below zero for the first time since March.

The European Central Bank wants to keep inflation below, but close to 2 percent over the medium term and started buying government bonds on the market in February to inject more cash into the economy and make prices rise faster.

The economic sentiment in the euro zone improved mostly in the construction sector raising to -20.7 from -23.2 in September. Retail sector confidence also grew significantly to 6.5 from 4.2.

Sentiment in euro zone industry grew slightly to -2.0 from -2.3, while optimism dropped in the services sector -- the biggest part of the euro zone economy -- from 12.4 points in September to 11.9 this month.

Consumer confidence declined to -7.7 from -7.1, confirming the downward trend started in August.

(Refiles to correct word headline, fixes language in first paragraph)

(Reporting by Francesco Guarascio; editing by Foo Yun Chee)

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