Worries about the euro zone's debt crisis worsened in November and dragged the European Commission's economic and consumer sentiment index to a two-year low, heightening the risks of a recession in Europe.

Business managers and consumers turned more pessimistic across almost all sectors of the euro zone's economy and the Commission's monthly economic sentiment index slipped to 93.7, its lowest since late 2009, and down from 94.8 in October.

Economists polled by Reuters had expected a figure of 94.0.

Adding to the depth of concern about the debt crisis and a slowing economy shown by last week's purchasing managers' surveys, the Commission's business climate indicator fell for a ninth month.

The index slid to -0.44 points from -0.19 and notched up a third month below zero. November's reading was the lowest since February 2010.

The euro zone's economy seems to be heading into a fairly deep recession, said Jennifer McKeown, an economist at Capital Economics in London. Public finance problems, the lack of reform and in some cases the risk of default are all issues and this trend in weakening confidence is likely to become worse.

European leaders have so far been unable to rally round a convincing strategy to solve the two-year crisis and bond yields are at or close to unaffordable levels in Spain and Italy.

Neither new technocratic governments in Athens and Rome, nor plans to amplify the power of the bloc's rescue fund, have been able to calm investor concerns about a Greek default or a break-up of the 17-nation currency area.

Those concerns are feeding back to company boardrooms, factory floors and households. Combined with austerity programs and layoffs across the euro zone, businesses and individual consumers are simply not spending and investing.

The European Central Bank has warned of a mild recession and most economists expect the bloc's economy to contract in the October-December period.

Many see the ECB cutting interest rates again in December, having cut them to 1.25 percent from 1.50 percent earlier this month -- even though the Commission's survey showed a slight increase in consumer inflation expectations in November.

The very serious possibility of a euro zone contraction in the fourth quarter, coupled with recent overall signs that underlying inflationary pressures are easing, provides a compelling case for the ECB to cut interest rates, said Howard Archer, an economist at IHS Global Insight.

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CONSUMER CONFIDENCE FALLS AGAIN

According to the Commission's surveys, confidence ebbed away across all most all sectors of the economy except for construction and financial services.

Sentiment deteriorated in industry -- the motor of Europe's recovery from the 2009 recession -- falling by 0.8 points from October. Euro-area managers expect to decrease their investment volumes by 2 percent in 2012 compared with 2011, the Commission said in a statement.

China's easing economic growth and falling demand for European goods seemed evident, as factories reported a further weakening in their order books, especially from abroad.

In a bad sign for unemployment in the euro zone, which is above 10 percent, companies in services were more pessimistic about recent orders and future business coming their way.

The service sector index fell 1.8 points in November, while in retail, sentiment dropped 1.3 points. In construction there was some optimism in November, and sentiment nudged up 0.3 points, the Commission said.

Consumer confidence fell for a fifth month running to hit a 27-month low in November, down 0.5 points to -20.4.

However, in the financial services sector, confidence increased, rising 4.9 percent on the month, which the Commission attributed to managers' improved assessment of recent developments in the business situation and demand.

(Reporting By Robin Emmott; editing by Luke Baker and Rex Merrifield)

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