Euro zone employment rose a touch more than expected last quarter and the economy expanded at a respectable pace, keeping alive hopes for a soft landing after more than a year of near-stagnation, fresh data showed on Thursday.

Employment in the 20-nation euro zone grew by 0.2% on the quarter, twice as fast as predicted in a Reuters poll of economists, pushing up the annual growth rate to 1.0% from 0.9% three months earlier.

While employment growth remains relatively weak, the figures may still ease fears that a downturn in the jobs market could drag the bloc into recession, especially given weak external demand and the poor performance of industry.

Indeed, the overall euro zone economy grew by 0.4% in the third quarter from the previous three months, Eurostat said, confirming its earlier flash estimate, which was twice as fast as economists expected.

Firms have been holding onto workers despite weak growth, fearing that hiring them back during an upturn would be just as difficult as finding qualified labour in the post pandemic period.

But high interest rates, shrinking corporate margins, an industrial recession and anaemic private consumption are all adding to the negative newsflow, which could convince businesses that holding onto excess labour is not worth the costs. However, hard indicators like Thursday's data or an earlier figure showing the unemployment rate holding at a record low 6.3% in September dispute this narrative and confirm that the labour market remains tight.

(Reporting by Balazs Koranyi; Editing by Toby Chopra)