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Business activity in the euro zone grew strongly again this month, only dipping from July's two-decade high monthly pace, as a rapid vaccination drive against the coronavirus allowed more firms to reopen and customers to venture out, a survey showed.

IHS Markit's Flash Composite Purchasing Managers' Index, seen as a good guide to economic health, fell to 59.5 in August from 60.2 last month. It was ahead of the 50-mark separating growth from contraction but just shy of a Reuters poll estimate for 59.7. Both the services and manufacturing indices remained firmly in growth territory in Germany, confirming Europe's biggest economy remained on a recovery path, an earlier survey showed.

Firms increased headcount in the euro zone at a near-record pace but were still unable to complete all new business coming in, building up a backlog of work at the third-fastest pace in survey history. The composite employment index held at 56.1. A PMI covering the bloc's dominant service industry nudged down to 59.7 from July's 15-year high of 59.8. The Reuters poll had predicted 59.8. Demand only slowed marginally from July - suggesting the rebound will continue - but the services business expectations index, which measure optimism about the year ahead, dropped to 68.6 from 69.1.

Manufacturers had another solid month, their PMI remaining well above the breakeven mark at 61.5, albeit below July's 62.8 and the 62.0 poll estimate. An index measuring output that feeds into to the composite PMI fell to 59.2 from 61.1. But supply delays - the delivery times index was near a survey low - again played a key role in driving up the costs of the raw materials factories need. The input prices index was 87.3, although down from July's record high of 89.2.

The FTSE 100 was slightly above 7,110 on Monday, trying to recover from last week's sharp sell-off, helped by a near 12% rally in shares of Sainsbury's following news that private equity firms are circling the British supermarket group with a view to possibly launching bids of more than £7 billion. Meanwhile, investors digested weaker-than-expected PMI data showing the UK business activity growth slowed to a six-month low in August, mainly due to staff shortages and supply chain issues.

The CAC 40 was up almost 1% on Monday, tracking a global improvement in risk-appetite and attempting to rebound from a 3.9% drop last week, which was its worst weekly performance since late October. Meanwhile, flash PMI figures showed the services sector in France slowed slightly more than anticipated while the manufacturing reading came in line with forecasts. On the corporate front, luxury stocks including LVMH, Hermes and Kering were among the top performers.

The FTSE MIB traded slightly higher around 26,063 on Monday, following last week's sharp sell-off, whereas the IBEX 35 traded slightly higher around 8,969.

The euro bounced back above $1.17 during the fourth week of August. Still, the common currency remained close to its weakest level since November 2020, as investors turned to the dollar after the Federal Reserve's last meeting minutes showed the central bank will start tapering its huge stimulus this year. At the same time, the European Central Bank is seen remaining dovish for some time after policymakers pledged last month to keep interest rates at record-low levels for even longer in an effort to bring inflation back to its 2% target. Elsewhere, prospects of slower global growth due to coronavirus outbreaks also hit risk appetite.

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