(Recasts with economists comments, background)
By Jan Strupczewski
BRUSSELS, April 29 (Reuters) - More optimistic consumers and industry led a stronger-than-expected rebound in euro zone economic sentiment in April, data showed on Wednesday, adding to signs the economy might be bottoming out.
But with sentiment still only just above record lows and consumer inflation expectations hitting new lows, the pressure was still on for the European Central Bank to cut interest rates and ease policy in others ways in May, economists said.
A monthly survey by the European Commission showed economic sentiment in the 16 countries using the euro improved to 67.2 points in April from 64.7 in March, against market expectations of a rise to 65.2 points.
This is the first rise in euro zone economic sentiment after 10 straight months of falls.
"It is good news. It is a much better than expected outcome and on face value, it suggests that the second quarter this year will be less miserable," said Daniele Antonucci, economist at Capital Economics.
"This does not mean that we'll have positive growth, but the pace of economic contraction might considerably slow along with a lot of other surveys," Antonucci said.
The data adds to similar signs of improving sentiment from the purchasing managers index and other surveys ahead of the May 7 ECB meeting.
"The ECB is still under pressure to boost lending. We expect the bank to cut its key interest rate next week by 25 basis points to 1 percent and extend the maturity periods for tender transactions," said Christoph Weil, economist at Commerzbank.
The bank wants to keep inflation below, but close to 2 percent over the medium term. Consumer price growth meanwhile has slowed to 0.6 percent year-on-year in March and is seen turning negative in the next few months.
In its policy decisions the ECB also looks at inflation expectations and the Commission survey showed selling-price expectations in manufacturing rebounded to -12 from an all-time low of -14 after a steady decline since July.
In the retail sector, selling-price expectations rose to -4 from an all-time low of -7.
But consumer inflation expectations fell further to a new record low of -2 points from 1 point in March, and selling-price expectations in services declined further to a fresh low of -9 against -5 in March.
"The ECB will note that consumers' inflation expectations sank to a survey low in April, while manufacturers' selling price expectations were still very near to March's record low, thereby adding to the evidence that underlying inflationary pressures are very weak," said Howard Archer, economist at IHS Global Insight.
Sentiment improved the most among consumers and in industry, by 3 points in both cases, to -31 and -35 points respectively. Optimism rose slightly also in the services sector, which generates some two-thirds of euro zone gross domestic product.
Sentiment in the retail sector and in construction, however, turned more gloomy.
"The rise in confidence suggests that both businesses and consumers are starting to become more confident in recovery prospects following the major stimulative action and banking support measures," said Archer. (Reporting by Jan Strupczewski, editing by Victoria Main)