Euro zone business activity returned to modest growth in July, according to the final Composite Purchasing Managers' Index from IHS Markit.

The PMI which is seen as a good indicator of economic health, bounced to 54.9 in July from June's 48.5, ahead of the 54.8 flash estimate.

It had been below the 50 level separating growth from contraction for four months.

"Euro zone service sector business activity rebounded in July to grow at a rate not exceeded for over two years," said Chris Williamson, Chief Business Economist at IHS Markit.

"France and Germany enjoyed especially strong gains though renewed growth was also recorded in Spain and Italy as COVID-19 containment measures continued to be relaxed."

The employment index held below breakeven at 46.5, albeit better than June's 43.2 reading.

While purchasing managers were more optimistic about the year ahead, the services business expectations index was below the long-run average at 59.4, although up from June's 56.7.

"Whether the recovery can be sustained will be determined first and foremost by virus case numbers, and the recent signs of a resurgence pose a particular risk to many parts of the service sector, such as travel, tourism and hospitality," Williamson said.