By Vicky Buffery
PARIS, May 21 (Reuters) - The rate of decline in French private-sector activity eased for a third successive month in May, a survey showed on Thursday, sparking hopes that recovery might set in as early as the third quarter of the year.
A flash estimate of the Markit/CDAF composite purchasing managers' index (PMI) -- which combines data from firms in the services and manufacturing sectors -- reached its highest level in eight months in May, rising to 46.1 from 43.8 in April.
The reading remained below the 50 mark separating growth from contraction, indicating that the euro zone's second-largest economy has further to fall before climbing out of recession.
But May's flash data exceeded expectations for the third straight month, Markit said, signalling that current predictions for a recovery towards the end of 2009 could prove pessimistic.
"Certainly the PMIs are suggesting that we'll see a return to economic growth in the second half of the year, possibly in the early part of the second half, so Q3," said Chris Williamson, chief economist at Markit.
The PMI for the manufacturing sector climbed to 43.1 in May from 40.1 the previous month, beating forecasts for a reading of 41.0 and reaching its highest level since last August.
In the services sector, the activity index rose to 47.6 from 46.5 in April, again comfortably ahead of market expectations for a figure of 46.8.
New orders continued to fall in both sectors, but the pace of decline slowed for the third consecutive, bolstering the view that demand is now stabilising.
Export orders in the manufacturing sector also dropped at a slower rate, and Markit reported signs of an uplift in demand from Asian countries as firms began to rebuild stocks.
But despite indications the worst may now be over, May's PMI data provided renewed evidence of the damage done to employment by France's worst recession since World War Two.
The composite employment index fell back to 39.1 in May, matching the series record low seen in March as firms continued to slash staffing levels to adjust to falling demand.
In the services sector in particular firms shed jobs at the fastest pace in the survey's 11-year history, signalling further bleak news for unemployment levels in the months ahead.
"Employment tends to lag (the economy) so we can expect unemployment numbers to keep rising for some time," said Williamson.
"France has 8.2 percent unemployment at the moment. I wouldn't be at all surprised if we surpassed 9 percent by the end of the year at the pace we're going."
(Reporting by Vicky Buffery; Editing by Victoria Main/Toby Chopra)