(Adds details, economist quotes, background)
By Anna Willard
PARIS, March 24 (Reuters) - French shoppers cut spending at the fastest pace in over a year in February, worried about rising unemployment, while business confidence stuck at a record low in March as bosses fretted about empty order books.
Consumer spending on manufactured goods fell 2.0 percent month-on-month, national statistics office INSEE said on Tuesday, far worse than expectations for a fall of 0.8 percent and the largest drop since January 2008.
Purchases of household equipment fell, in line with the slowing housing market, and clothing sales were also down after a boost from sales and a cold snap in January. [ID:nPAB004715] The January spending rise was revised down to 1.7 percent.
Other data on Tuesday showed mounting job losses in March. The Markit/CDAF composite purchasing managers' index showed firms cut jobs at the fastest pace in the 10-year-old series, casting doubt over the outlook for the months ahead. [ID:nSAC014199]
"The main problem for the French economy is the increase in unemployment and the decrease in confidence," said Xerfi economist Alexander Law.
"The more people are worried, the less they are going to spend ... We're really in that vicious circle at the moment. I can't see the green shoots of recovery in the French economy."
Another INSEE report showed business morale in March stayed at 68, the lowest point since that survey began in 1976, as bosses fretted about empty order books. [ID:nPAB004716]
"The industrial outlook has remained very bad," INSEE said.
"Conditions remain very bad, there were expectations of a pickup at the beginning of the year compared with a very bad fourth quarter and we haven't had it," said Jean-Louis Mourier, economist at Aurel Leven.
Analysts said the economy might get a slight bounce in the months ahead as companies started to build up their stocks.
"But that is pretty technical. It's not restocking, it's just less destocking. Aside from that, it's difficult to be too optimistic," Mourier said.
INSEE is expecting the economy to shrink 1.5 percent in the first quarter which would mean a recession after the 1.2 percent contraction in the last three months of 2008.
STRUGGLING TO SURVIVE
The consumer spending report showed purchases of cars rose 0.2 percent, the third monthly increase. Economists said this was likely due to a 1000 euro government subsidy to encourage households to swap their old cars for new ones.
Many French industrial companies are struggling to survive the financial crisis, forcing the government to step in to try and save jobs.
It made available 6 billion euros in loans for car companies and took a stake in struggling car parts manufacturer Valeo.
But the government's policies, which included a 26 billion investment-led stimulus plan have angered unions and ordinary French. They say President Nicolas Sarkozy is only helping companies -- and their well-paid bosses -- and must do more to help consumers and prevent job cuts.
Up to 3 million people joined protests against his economic policies last week, stirring the debate about whether Sarkozy should announce new steps to boost consumption.
But economists say even the drop in inflation is not enough to encourage reluctant consumers to spend.
"All of which adds to the sense that, in this context, measures to stimulate the economy through consumption are ineffective, while at the same time proving extremely expensive for public finances," said Nicolas Bouzou, economist at Asteres.
"You can lead a horse to water but can't make it drink." (Additional reporting by James Mackenzie, Vicky Buffery, Veronique Tison; Editing by Ruth Pitchford)