* Sentiment in euro zone bests since August 2011 * Oct jump driven by industry, consumers, other sectors drops * Climate best since Feb 2012, close to long-term average By Martin Santa BRUSSELS, Oct 30 (Reuters) - Confidence in the euro zone's economy improved more than expected in October driven by more optimism in industry, data showed, while the business climate indicator rallied to an 18 month high, signaling the recovery in Europe was strengthening. The European Commission said its economic sentiment index rose to 97.8 points in October - its highest since August 2011 - from 96.9 points in September, while market had expected a rise to 97.3. Separately, the euro zone's business climate index - which measures the phase of the business cycle - improved to -0.01 points in October from -0.19 in September, its best reading in since February 2012. The nascent euro zone recovery is hampered by different prices of credit to companies across the 17 countries sharing the euro, with firms in peripheral countries which suffer from fiscal austerity and a high jobless rate having to pay the most. "The assessments of past production, the level of overall order books and production expectations improved markedly. Also the level of export order books and the stocks of finished products were appraised more positively," the Commission said. While the mood in industry and to a lesser extent among consumers improved in October, confidence weakened in services, and the retail and construction sectors. Confidence in Spain, which returned to growth in the third quarter after more than two years of recession, worsened in October to 94.6 points from 96.8 in September. Germany, currently in the middle of coalition-forming talks between Chancellor's Angela Merkel Christian Democrats and the Social Democrats, saw confidence rising for a seventh month in a row to 104.9. More optimistic consumers could be a positive sign for the European Central Bank (ECB), which faces a dilemma of how to deal with a strengthening euro and subdued inflationary pressures that keep price growth well below the ECB's target. ECB's Governing Council member Ewald Nowotny said on Tuesday there was no reason for the central bank to intervene and weaken the euro's exchange rate, adding it has not yet reached a level requiring a response.

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