European Economy Weakens Further as April Surveys Show Manufacturing Slippage

Eurozone manufacturing activity slowed at a faster pace than expected in April as the region's debt crisis continues to erode confidence and threatens an even deeper recession for the world's second-largest economic block.

The final reading of Markit's Purchasing Managers Index showed further weakening in manufacturing activity from its first estimate earlier this month. The final figure for the whole of the Eurozone declined to a three-year low 45.9, Markit said Wednesday, down from an initial reading of 46 and a March figure of 47.7. The employment component of the manufacturing index slipped to a two-year low 47.6 while the output subindex hit a five-month low of 46.1 Figures below 50 in PMI surveys normally indicate contraction in the broader economy while figures above 50 generally point to expansion.

Across the eurozone, unemployment rose to an offical 10.9 percent in March, matching the high-ever reading since the single currency was established in 1999.

Individual country surveys were equally gloomy, particularly in German, Europe's biggest and most important economy.

The April PMI hit a three-year low 46.2, slumping nearly two full points from March. The figures came just moments before the Federal Labor Office reported an unexpected 19,000 increase in German unemployment for the month, taking the total jobless rate to 2.875m and snapping a five-month run of job gains. Germany's unemployment rate was officially unchanged at 6.8 percent.

The single currency immediately fell to a session-low $1.3194 against a weakening US dollar following the reports, while German bund futures for June delivery rose marginally to 141.09.

Perhaps the biggest surprise from the PMI set came from Italy, where manufacturing activity sagged to a 43.8 reading and new orders plunged to 39.2, the steepest drop in at least three years. Crisis stricken Greece saw its PMI reading dip further to 40.7 in April from 41.3 in March as factories cut more jobs and shut down more spare capacity, pressuring an already staggering unemployment rate of 22 percent.

Italy's benchmark 10-year government bond yields rose two basis points to trade at 5.55 percent. A basis point is 0.01 percent.