Euro Zone Economic Growth Slows Sharply

Euro zone economic growth slowed far more sharply than expected in the second quarter as industrial production stalled in June, data from the European Union's statistics office showed on Tuesday.

Eurostat said gross domestic product in the 13 countries using the euro rose 0.3% quarter-on-quarter in April to June -- less than half the 0.7% rate clocked up in the prior quarter. Economists had forecast economic growth of 0.6% in the second quarter.

Second quarter growth in the euro zone was still up 2.5% on the same three-month period in 2006.

The quarter-on-quarter slowdown may dampen market expectations that the European Central Bank is set to hike euro zone borrowing costs to keep inflation on an even keel. Turmoil in the global credit markets have already prompted investors to scale back expectations of a September ECB hike.

Eurostat also said euro zone industrial production shrank 0.1% in June from an upwardly revised 1% advance in May. The June dip in output was in line with forecasts and production was still up 2.3%t on June 2006.