LONDON The downturn in euro zone manufacturing eased last month, suggesting the worst may be over for the bloc's beleaguered factories although demand weakened to its lowest in almost a year, a survey showed on Friday.

Germany, Europe's biggest economy, remained a negative outlier among the big players, likely fuelling the discussion about it being the sick man of the region even though it is among one of the most diversified economies.

HCOB's final euro zone manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, rose to a three-month high of 43.5 in August from July's 42.7, albeit below a preliminary reading of 43.7. A reading below 50 marks a contraction in activity.

An index measuring output, which feeds into a composite PMI due on Tuesday and seen as a good gauge of economic health, rose to 43.4 from 42.7.

"These numbers aren't as terrible as they might look at first glance," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

"All of the twelve sub-indices have moved upwards or remained practically unchanged, showing that the downward trend from the past few months is starting to lose steam across the board."

However, the new orders index nudged down to 39.0 from 39.1, the second-lowest reading since the COVID pandemic was cementing its grip on the world.

The cost of production contracted for a sixth month and factories again passed some of these savings onto consumers, likely welcome news to policymakers at the European Central Bank who have so far failed to get inflation back to target.

They are expected to pause interest rate increases this month, according to a narrow majority of economists polled by Reuters, but will hike once more this year, taking the deposit rate to 4.00%.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)