EUROPEAN confidence in the economic outlook this month plunged the most since December 2008 as a persistent debt crisis disturbed markets and clouded growth prospects across the 17-nation eurozone.

An index of executive and consumer sentiment fell to 98.3 from a revised 103 in July, the European Commission in Brussels said yesterday, the lowest since May last year. Economists had forecast a decline to 100.2, according to the median of 29 estimates in a Bloomberg News survey.

The euro area's economic prospects are deteriorating as national governments cut spending in a bid to narrow deficits and tackle the debt crisis. Economic and Monetary Affairs Commissioner Olli Rehn signaled yesterday that the European Union may reduce its 2011 growth forecast from 1.6 percent on concerns that financial turbulence could spread.

Daniel Hartmann, an economist at Switzerland-based Bantleon Bank, said: "The risk of recession in the eurozone has clearly increased as demand from Asia is flagging and governments' efforts to cut fiscal deficits are curbing domestic consumption."

A gauge of sentiment among European manufacturers dropped to -2.9 from 0.9 in the previous month, according to the report. An indicator of services confidence fell to 3.7 from 7.9, while a measure of consumer confidence declined to -16.5 from -11.2.

European leaders have struggled to contain a debt crisis that originated in Greece and has also forced Ireland and Portugal to seek bailouts. The European Central Bank began buying Spanish and Italian government bonds earlier this month to prevent the debt crisis spreading to the eurozone's third and fourth- biggest economies.

The purchases brought the countries' 10-year bond yields down to about five percent, as Europe's leaders disagreed over how to contain the turmoil.

European Central Bank president Jean-Claude Trichet said. "We continue to see the euro area economy growing at a modest pace."