LONDON Euro zone manufacturing activity took a further step back last month in a broad-based downturn, according to a survey which showed new orders contracted at one of the steepest rates since the data was first collected in 1997.

HCOB's final euro zone manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 43.1 in October from September's 43.4, just above a 43.0 preliminary estimate. A reading below 50 indicates a contraction in activity.

An index measuring output, which feeds into a composite PMI due on Monday and seen as a good gauge of economic health, held steady at 43.1.

"The euro zone manufacturing sector's trend over the last two years or so looks like a bumpy sleigh ride down into the valley," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

"The stagnating new orders index, which remains deep in negative territory, and the similar behaviour of the quantity of purchase index does not suggest an immediate turnaround."

New orders fell for an 18th month in October and at a faster pace with the index slipping to 39.0 from 39.2. The quantity of purchases index was also one of the lowest in the survey's history suggesting factories do not think they need much in the way of raw materials.

Weakening demand came despite factories cutting their prices again in October - the sixth straight month they have done so - likely welcome news to policymakers at the European Central Bank who have struggled to get inflation down to their 2% target.

Last week they left interest rates unchanged, ending a streak of 10 consecutive hikes.

Although inflation is falling fast, the euro zone economy has begun contracting, official data showed on Tuesday.

(Reporting by Jonathan Cable; Editing by Christina Fincher)