Euro zone manufacturing hit reverse gear in August, tumbling to a two-year low, a key survey showed in a new signal of economic slowdown.

The euro zone manufacturing purchasing managers' index (PMI) compiled by London-based Markit logged 49 points in August, down from 50.4 in July. The index is a leading indicator of trends, and any score below 50 indicates contraction.

IHS Global Insight chief European economist Howard Archer said the PMI figures "make bleak reading, with deterioration across virtually all countries and also across most components of the surveys."

The contraction in manufacturing activity, especially the continuing decline in orders, "fuels concern that euro zone growth is in serious danger of grinding to a halt," Archer said.

"The euro zone is clearly struggling in the face of tighter fiscal policy across the region, heightened sovereign debt tensions and financial market turmoil.

Also importantly, slower global growth has clearly hit foreign demand for euro zone goods and services pretty hard, as was evident in the second successive contraction in manufacturing export orders in August."

Only Germany, the Netherlands and Austria posted indications of manufacturing sector economic growth, with France, Italy and Spain slumping into negative territory.

Output fell across the 17-nation euro zone as a whole for the first time in more than two years while new orders decreased for the third month running and at the quickest pace for 26 months, Markit said.

The figures were "even worse than the disappointing earlier flash numbers, signalling an end to the manufacturing recovery which began in October 2009," said Markit chief economist Chris Williamson.

He said the data showed "output falling for the first time since July 2009 and job creation sliding to the lowest for nearly a year."

"Germany saw new export orders fall at the fastest rate of all countries surveyed, meaning the euro zone can no longer rely on export-led growth in its largest member state to help sustain even a lacklustre recovery for the region as a whole."