LONDON Euro zone manufacturing activity contracted faster than initially thought in June as persistent policy tightening by the European Central Bank squeezed finances, according to a survey which painted an increasingly gloomy outlook for industry.

The downturn was broad-based with surveys published earlier on Monday showing factory activity in all four of the euro zone's biggest economies contracted last month.

Compiled by S&P Global, HCOB's final manufacturing Purchasing Managers' Index (PMI) fell to 43.4 from May's 44.8, its lowest since the COVID pandemic was cementing its grip on the world, below a preliminary reading of 43.6 and further from the 50 mark separating growth from contraction.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good gauge of economic health, dropped to an eight-month low of 44.2 from 46.4.

"There is growing evidence that the capital-intensive industrial sector is reacting negatively to the ECB's interest rate hikes," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

In its battle to try and bring high inflation back to its 2% target the ECB has already added 400 basis points to key rates and is widely expected to add another 25 this month, hitting the spending power of indebted consumers and companies.

Demand weakened at the fastest pace in eight months despite sharper price cuts on manufactured goods so less optimistic factories reduced their workforce for the first time since early 2021. The employment index fell to 49.8 from 51.5.

(Reporting by Jonathan Cable; Editing by Toby Chopra)