Hopes of a recovery in the eurozone were lifted after private sector firms across the region reported a rise in output for the first time in 18 months, leading to predictions that the single currency bloc is on the cusp of exiting recession.

A strong performance by German manufacturers and a halt to the headlong decline in French business activity gave the eurozone a much needed boost after the area slipped into reverse last year.

With the US manufacturing sector expanding at a faster pace in July, the main blot on the global economic recovery was a decline in manufacturing output in China that some economists have warned could force Beijing to renew its stimulus spending or risk a hard landing.

China's manufacturing sector tempered the eurozone data, slowing to an 11-month low as new orders faltered and the job market darkened.

The flash HSBC/Markit Purchasing Managers' Index (PMI) fell to 47.7 this month from June's final reading of 48.2, marking a third straight month below the 50 threshold between expansion and contraction for China.

As if to highlight concerns that global growth is slowing, Caterpillar, the US construction and mining business that is considered a bellwether of global business activity, downgraded its forecast for the pace of the global recovery this year and next.

Alexandra Knight, an economist at National Australia Bank, said the weak Chinese PMI posed a problem for countries that relied on exports to China.

"It adds to the concern about the outlook for demand, and brings into question just how strong Chinese commodities demand will be," she said.

Several analysts said the contraction in activity was overplayed by the survey and the manufacturing sector was stronger than many believed. But scepticism over official data supplied by Beijing and a growing credit bubble has convinced other economists that China will do well to avoid a full-blown recession.

Nervous stock markets remained steady as they digested the news, with the FTSE 100 climbing 23 points to 6620, though oil slipped towards $107 a barrel as the prospect of higher demand evaporated.

Despite the global outlook, policymakers in Brussels will be buoyed by the monthly healthcheck of firms in the euro area that found that manufacturing output has risen for the first time since February 2012. Service sector firms are also pulling out of their long decline, with France and Germany leading the way out of the downturn.

Data provider Markit, which compiles the monthly Purchasing Managers' Index (PMI), said the figures showed the eurozone was stabilising.

"The best PMI reading for one-and-a-half years provides encouraging evidence to suggest that the euro area could, at long last, pull out of its recession in the third quarter," predicted Chris Williamson, chief economist at Markit.

Markit's composite PMI rose to 50.4, from 48.7 in June, which is the best reading since January 2012. Any figure over 50 indicates growth.

Germany's service sector growth hit a five-month high and French factories, which have suffered through the country's downturn, returned to growth with the strongest performance in 17 months.

"Today's PMI data corroborate our assessment that the eurozone economy is slowly moving from contraction to stabilization," said Tom Rogers, senior economic adviser at EY.

Even so, Rogers said a "real recovery remains a long way off," with jobs continuing to be shed in a number of countries in the region and amid tight bank credit conditions for companies. The European Central Bank has unveiled a new plan to boost lending to firms, but it's unclear how long it will take to have an impact.

"Much more remains to be done by both the ECB and governments if the recovery in the coming 12-18 months is not to be weak and prone to setbacks," Rogers said.

Figures from Paris showed unemployment in France rose to a new record of 3.28 million in a fresh blow to President Francois Hollande's pledge to cut down unemployment by year-end. Economic output in the eurozone has been shrinking since the last three months of 2011, the longest recession since the single currency was created. Data due out in August will show whether the trend continued in the second quarter of 2013.

Markit reported that eurozone firms continued to cut staff, but at a lower rate than earlier this year. Williamson said the PMI report will provide "a summer fillip to policymakers, especially in terms of there being light at the end of the tunnel for austerity-hit periphery countries where political and social tensions have risen".

The euro hit a one month high of $1.3249 against the US dollar after the data was released.