These figures show the economy is resisting well

Laurent Fabius French finance minister

Forecasters had generally expected the July figure to show a 0.1% slippage, with August unchanged.

But the figures were flattered slightly by a downgrade to the June figure, to 0.7% from 1.5%.

Retail strength

With manufacturing in the doldrums across Europe and the US, consumer spending has been increasingly seen as the best hope of stopping the global economic slowdown from turning into a recession.

The French government said the news proved that the economy was holding up to the strain of the slowdown.

"Naturally it's other figures we're waiting for, but for the people who were saying the economy was already depressed, these figures show the economy is resisting well," said Laurent Fabius, the finance minister.

Data from major retailers since 11 September remained "extremely positive", he said.

Price stability

Meanwhile in Germany, new regional price figures went some way towards calming fears about inflation in Europe's largest economy - a key reason for the European Central Bank's reluctance to cut interest rates until a few days after the 11 September attack.

The data from six of the country's 15 states said consumer prices were broadly stable, with inflation falling year on year.

The information backed economists' expectations that inflation for the country as a whole is set to fall back to a yearly rate of 2.1%, compared to a yearly rate of 2.6% in August, closing in on the Euro-wide target of 2%.

The drop is partly due to last year's spike in oil prices dropping out of the year-on-year calculation, a factor which prompted a warning from Bundesbank member Franz-Christoph Zeitler that it was "not yet certain" that the 2% stability level can be maintained.

New jobs in Italy

The icing on the cake was news that Italy's job market has remained buoyant.

The country's July unemployment rate dropped to 9.4% form 9.6% the month before, its lowest level in more than eight years.

And a business confidence survey from quasi-governmental research group ISAE told of a general pick-up in demand in the six weeks to early September.

But the news was tempered by an announcement by Alitalia, the country's biggest airline, that it will have to get rid of 2,500 staff to cope with the expected contraction as well as selling 12 aeroplanes.

And industrial group Confindustria warned that the attacks on US targets meant growth will be about 1.9% this year, well short of the government's 2.4% target.

And it said the budget deficit will probably be about 1.5%, nearly twice the 0.8% Italy's government has promised its European Union partners.