BRUSSELS (Reuters) - Euro zone economic confidence improved by more than expected in June, rising to its highest level in a little over a year, a sign that Europe could be emerging from nearly three years of slump brought about by its debt and economic crisis.
The bloc of 17 countries using the euro is in its longest recession since records began in 1995. Prospects for a quick rebound are limited by still rising unemployment, the impact of deep budget cuts and the absence of business lending.
But in a sign that consumer spending could help spur growth, the European Commission's economic morale index rose to 91.3 points in June - its highest since May 2012 - from 89.5 points in May, against market expectations of an improvement to 90.3.
Separately, the euro zone's Business Climate Index - which points to the phase of the business cycle - rose to -0.68 points from -0.75 in May. Both indices have been improving since April.
Economists were encouraged but wary.
"We are still cautious not to get carried away by the positive survey data flow out of the euro zone this month," said Evelyn Herrmann, European economist at BNP Paribas.
Confidence improved across all areas except services, with all five of the euro zone's largest economies - Germany, France, Italy, the Netherlands and notably Spain showing an upturn.
Spain, which has been in recession for one-and-a-half years and many economists forecast the recession to continue to the end of the year, saw sentiment improving in June by 2.5 points to 92.3, the highest level since February 2012.
The rise in industry confidence came from more orders and higher production expectations, while consumer morale rose for the seventh consecutive month, the Commission said.
"Overall Euro zone economic sentiment is still at a relatively low level compared to long-term norms, which suggests that businesses will remain cautious in their employment and investment plans in the near term at least," said Howard Archer, European economist at IHS Global Insight.
The European Central Bank (ECB) kept interest rates on hold at record lows this month with several policymakers hinting at the possibility of further cuts if necessary to help recovery.
ECB President Mario Draghi said on Tuesday rates would stay low for quite some time as price stability was assured and the overall economic outlook and record high unemployment still warranted an accommodative stance.
Reporting by Martin Santa; editing by Luke Baker