Euro area manufacturing contracted more than initially estimated in August, suggesting the economy may struggle to avoid a recession in the third quarter.

A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 from the reading of 45.3 estimated earlier, London-based Markit Economics said today.

The index, which stood at 44 in July, has held for 13 months below 50, indicating contraction.

European manufacturers are feeling the impact of the sovereign-debt crisis and tougher austerity measures that have undermined export and consumer demand.

Euro area economic confidence fell to a three-year low and inflation accelerated to 2.6 per cent in August.

The jobless rate held at a record 11.3 per cent in July.

"The euro zone manufacturing sector remains firmly in contraction territory," Rob Dobson, senior economist at Markit, said in the report.

"The sector is on course to act as a drag on gross domestic product in the third quarter."

The euro fell against the dollar on the purchasing-managers data and traded at $1.2569 at 10.44am in Brussels, down 0.1 per cent on the day.

The European currency has declined more than 11 per cent in the past year.

Bloomberg