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London - Euro zone businesses started 2014 with their best quarter in three years, but buoyant growth came at a cost as they slashed prices to drum up trade, which could further stoke deflation fears.
The European Central Bank is not expected to ease policy when it meets later on Thursday, relying instead on verbal support to allay fears that falling prices in several euro zone countries could spread to the whole bloc.
"The ECB is primarily concerned about what is happening with inflation, and yes we have too little for the ECB's comfort," said Peter Dixon at Commerzbank.
"But I think they want to see if the most recent set of numbers marks a trough before acting further."
The Composite Purchasing Managers' Index, which compiler Markit said pointed to first-quarter growth of 0.5%, was followed by official data which showed retail sales rose more than expected in February.
If Markit's estimate is realised, it would beat expectations in a Reuters poll last month for a more modest 0.3% expansion and mark the fastest pace of growth since early 2011.
"We've had a reasonable overall set of data, these numbers were generally pleasing," Dixon added.
The Composite PMI, a broad survey of businesses that is regarded as a good gauge of growth, dipped to 53.1 in March from February's 32-month high of 53.3, holding above the 50 mark that divides growth from contraction for the ninth month.
The German, French and Spanish service industry PMIs were all solid last month although Italy's unexpectedly fell back into contraction territory, casting some doubt on the strength of its recovery.
Separate data showed Britain's dominant services sector expanded steadily in March, pointing to solid economic growth in the first quarter.
