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By Bloomberg

The euro-area economy may have moved one step away from another contraction.

A Purchasing Managers Index for the manufacturing industry unexpectedly rose to 50.7 in October from 50.3, London-based Markit Economics said today. Economists surveyed by Bloomberg News predicted a drop to 49.9. A reading below 50 indicates contraction. A measure for services held at 52.4.

The numbers suggest that the euro area "has so far avoided a slide back into recession this year," said Chris Williamson, chief economist at Markit in London. At the same time, "growth is so anemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting," he said.

The 18-region economy failed to grow in the second quarter, and European Central Bank President Mario Draghi has warned of a deflationary spiral of falling prices, with households postponing spending. The Frankfurt-based institution started buying covered bonds on Oct. 20 and plans to purchase asset- backed securities before the end of the year in an attempt to boost growth and prices in the region.

The euro rose after the report and traded at $1.2655 at 10:17 a.m. Frankfurt time. The Stoxx Europe 600 index was up 0.3 percent.

Germany, France

Inflation in the currency bloc was 0.3 percent in September, far from the ECB's goal of just below 2 percent. Today's report showed that companies cut prices by the most since February 2010 to try to boost demand.

A composite gauge for manufacturing and services in the region rose to 52.2 in October from 52 in September, beating the median estimate in a separate survey. New factory orders fell for a second month.

In Germany, a gauge of factory activity unexpectedly jumped to 51.8 from 49.9, indicating that Europe's largest economy may avoid a deeper slump. Even so, "there are still some uncertainties about the near-term," said Oliver Kolodseike, an economist at Markit.

In France, services and manufacturing shrank more than estimated.

The ECB cut its 2014 and 2015 growth forecasts for the euro area to 0.9 percent and 1.6 percent, respectively, in September. The institution predicts inflation rates of 0.6 percent in 2014 and 1.1 percent next year.