EUROPE ECONOMY-Euro zone Sept business growth at four-month low -PMI

* Euro zone September composite PMI at four-month low of 53.6

* Markit (NasdaqGS: MRKT - news) says PMI points to Q3 GDP growth of 0.4 pct

* Service firms raise prices for first time since Aug 2011

* UK Services PMI sinks to 2-1/2 year low

* Services PMI momentum: http://link.reuters.com/vut72w

* European PMIs: http://link.reuters.com/suw32w

* European services PMI comparison: http://link.reuters.com/keq22v

By Jonathan Cable and Sumanta Dey

LONDON, Oct (HKSE: 3366-OL.HK - news) 5 (Reuters) - Euro zone business activity grew at its weakest pace in four months during September but in one encouraging sign for the European Central Bank, service firms raised prices for the first time in four years, surveys showed on Monday.

The data point to modest third-quarter growth of 0.4 percent, survey compiler Markit said, and are likely to largely disappoint policymakers, six months into the ECB's 60 billion euros ($68 billion) a month quantitative easing programme.

Britain's economy, which has been outpacing the euro zone's, is also losing steam, with service industry growth at a 2-1/2-year low, likely rattling the Bank of England as its Monetary Policy Committee meets to discuss interest rates this week.

"The euro area is broadly as expected. For the region overall we are seeing the economy ticking along at a reasonable pace, it's not blistering," said Sarah Hewin, chief economist for Europe at Standard Chartered (HKSE: 2888.HK - news) .

"Of the two sets of releases the surprise has come from the UK. It (Other OTC: ITGL - news) is something of a concern going into the fourth quarter."

Markit's final September Composite Purchasing Managers' Index (PMI) for the euro zone came in at a four-month low of 53.6, weaker than an earlier estimate of 53.9.

In August, it was 54.3 but has now been above the 50 mark denoting expansion since July 2013 and there were tepid signs of inflationary pressure.

However, new orders rose at a much slower pace than first reported and fewer new jobs were created, suggesting firms were growing increasingly downbeat.

The PMI (Other OTC: PMIR - news) for the dominant service industry dipped as well, settling at 53.7 from August's 54.4 and lower than a flash estimate of 54.0. A similar survey of manufacturing firms released on Thursday had also fallen, to 52.0 from 52.3.

An earlier composite PMI from Germany, Europe's biggest economy, fell as did those out of Italy and Spain. France's composite reading bucked that trend and rose, pointing to 0.2 percent growth in the third quarter, according to Markit.

Euro zone retail sales were unchanged in August from July, slightly better than the 0.1 percent decline expected by economists in a Reuters poll. reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=EURSL%3DECI

Britain's headline services PMI dropped to 53.3 in September from August's 55.6, its lowest since April (LSE: 0N69.L - news) 2013 and well below any forecast in a Reuters poll of economists. The expectations component was its lowest since August 2014.

"This is undeniably a disappointing survey all round that can only fuel concern over the UK economy's current soft patch, especially given the services sector's dominant role," said Howard Archer at IHS Global Insight.

"It is hard to take any positives from this report and it will certainly fuel expectations that the Bank of England will not be hiking interest rates until well into 2016."

The BoE is still expected to raise interest rates from a record low 0.5 percent early next year but that prediction now rests on a knife's edge after the U.S (Other OTC: UBGXF - news) . Federal Reserve delayed its first hike, a Reuters poll found last week.

While economists have been focussing on how soon the Fed and BoE begin tightening their ultra-loose monetary policy there have been increasing expectations ECB officials will go the other way and loosen policy further.

Several ECB policymakers, led by President Mario Draghi, have publicly hinted the trillion-euro stimulus programme could be increased or extended if inflation is seen failing to rise towards the central bank's near 2 percent target.

A Reuters poll last month predicted the ECB would officially extend its asset purchase programme beyond September 2016 in yet another attempt to drive up inflation and rekindle growth and those calls probably grew louder after official data showed euro zone inflation slipped below zero again in September.

Offering a glimpse of reassurance for officials trying to generate inflation, the euro zone service sector PMI showed firms charged higher prices last month for the first time since August 2011. ($1 = 0.8866 euros) (Editing by Catherine Evans/Ruth Pitchford)