Eurozone private sector activity improved much more than expected in July, returning to levels seen before the Iran war, but the latest wave of escalation in the conflict threatens to pressure sentiment again.

The composite Purchasing Managers' Index, compiled by S&P Global, rose to 51.9 points, crossing the 50-point threshold separating growth from contraction for the first time since March.

This reading was higher than the forecasts of all but one economist in a Bloomberg survey, which showed the median estimate for a slight rise to 50.2 points.

The region's two largest economies beat expectations, according to the survey conducted between July 9 and 22, with Germany's index unexpectedly jumping well above the 50-point mark, ending three months of contraction. In France, contraction eased to its lowest since February.