Oil drives up euro zone factory prices in July

Prices at factory gates in the 17 countries using the euro rose 0.4 percent in July, ending a two-month run of falls, the EU's statistics office Eurostat said on Tuesday. That compared to a consensus expectation of a 0.2 percent rise in the month among economists polled by Reuters.

The ECB cut interest rates to a record low of 0.75 percent in July after a cooling of energy prices in May and June, with Brent crude under $100 a barrel at the time.

But tensions between Iran and the West over Tehran's nuclear ambitions have persisted and driven crude back higher, with Brent at around $115 a barrel on Tuesday.

Consumer inflation in the euro zone has been well above the ECB's target of just below 2 percent for more than a year and is proving to be sticky. Mainly because of oil prices, annual consumer inflation rose to 2.6 percent in August, Eurostat said, the 20th month in a row that it has been above the target.

The United States is debating whether to release of strategic oil reserves to cool prices, a plan supported by Britain and France, but opposed by Germany and Italy.

Eurostat's reading of industrial producer prices in July showed energy jumping 1.6 percent after falling in April, May and June. At a time when the euro zone's economy is in recession for the second time in just three years, devastated by its debt crisis, producer prices excluding energy and construction were much more muted, rising just 0.1 percent in July.

Prices for capital goods, mainly machinery, were unchanged from June, and non-durable consumer goods, which include cosmetics and cleaning products, rose 0.2 percent.

With one in 10 workers out of a job and the bloc's economy expected to contract by at least 0.3 percent this year, the ECB is trying to cut the cost of borrowing for companies and households, but is not expected to cut rates again at its meeting on Thursday.

Expectations are instead for the announcement of a bond-buying plan that has divided ECB policymakers over whether the plan breaks EU rules and directly finances euro zone economies.

ECB President Mario Draghi told European lawmakers on Monday that purchases of short term sovereign bonds would not breach those rules. <ID: nL6E8K3L6G>

(Reporting by Robin Emmott; editing by Rex Merrifield)