By Amy Caren Daniel and Shreyashi Sanyal
(Reuters) - European shares traded close to flat on Thursday as upbeat surveys on Germany and the euro zone offset signs that U.S. policymakers had not intended to start a cycle of interest rate cuts with last month's move.
Germany's DAX <.GDAXI> shrugged off a weak open, to trade 0.1% higher, after Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services sectors, rose to 51.4 in August, above expectations of 50.5.
The leading indicator also showed French business activity expanded in August, pointing to resilience in the euro zone's two biggest economies after Germany contracted in the second quarter.
A similar survey showed Euro zone business growth picked up a touch in August, helped by brisk services activity and as manufacturing contracted at a slower pace.
The data helped the pan-European STOXX 600 index <.STOXX> to recover from solid initial losses to trade just 0.1% lower by 0815 GMT, with Italian stocks <.FTMIB> outperforming with a 0.39% rise.
"What we are seeing is the service sector holding up comfortably well while the industrial slump has got more room to run and even possibly deepen," said Holger Schmieding Chief Economist at Berenberg.
"This data is not going make recessionary concerns worse, but it also won't make them vanish anytime soon. We are still far away from any stabilization and it could possibly drag on till we see at least a partial trade deal between the U.S. and China."
Flash surveys from the United States are due later in the day.
Italy reversed earlier losses after Reuters reported President Sergio Mattarella wanted clear signs of a possible deal to form a new government by the end of the day.
"That is actually good news because the immediate challenge for Italy is to come up with a 2020 budget by mid-October, now the 5-Star and Democratic Party (PD) could possibly broker a compromise with the EU which would reduce uncertainty," Schmieding said.
Hopes of stimulus moves by governments and central banks have steadied major stock markets in the past week but most are still on course to end August lower after a two-week sell-off driven by concerns that major economies were heading for recession.
The Federal Reserve minutes on Wednesday showed policymakers were deeply divided over whether to cut rates in July, but united in wanting to signal they were not on a preset path to more cuts that would support economic growth.
Minutes from the European Central Bank's last policy meeting are also due at 11:30 GMT.
Ahead is the Fed's annual Jackson Hole meeting of central bankers, which should provide more clues to the Fed's mood after U.S. President Donald Trump's announcement of additional tariffs on Chinese goods at the start of August.
The biggest gainer on the STOXX was NMC Health Plc
Shares of Ambu A/S
(Reporting by Amy Caren Daniel and Shreyashi Sanyal in Bengaluru; editing by Patrick Graham)