(Adds fresh details throughout) ROME, June 21 (Reuters) - Italian business confidence fell in June in the latest sign the euro zone's third largest economy is struggling to build the necessary momentum for a recovery, a survey on Friday showed.
Confidence among business executives dipped to a seasonally adjusted 95.3 in June from a 16-month high in May of 97.5, with the decline reflecting weakness across consumer, intermediate and investment goods.
The figure from research body ISAE, which is based on a survey of 4,000 business in early June, was sharply below most economists' expectations.
Shortly after the report was released, the head of Fiat Auto, the car division of Italy's largest manufacturer, told a parliamentary hearing domestic car sales would be worse in the second half of 2002 than they were in the first half.
And Paolo Fresco, chief executive of the whole Fiat group , said he expected car demand in Italy to fall 15 percent in 2002 while it would fall just five percent across Europe.
News of weaker business sentiment comes just two days after a separate report from ISAE showing consumer confidence fell to a two-year low in June as ordinary Italians worry about persistent inflation and the impact of slower growth on jobs.
"This is the first time this year that industrialists' join consumers in their bleak confidence over the national economic outlook," said Natalia Bailey, an analyst at 4Cast in London.
"Unless industrial production shows clear signs of a rebound in the next few months, GDP might end up growing by even less than our subdued 1.1 percent 2002 estimate," she said.
Most independent economists expect Italian gross domestic product to grow between 1.2-1.4 percent this year, far less than the government's official target of 2.3 percent.
Industrial production, which the industry minister expects to drive the economic recovery this year, has shown few signs of a pickup in recent months.
Industrial output fell sharply in April, partly as a result of a one-day general strike during the month, but also on the back of a poor outurn from key industries such as oil refining, transport and power generation.
One bright spot is industrial orders -- a leading indicator of future industrial production -- with figures on Thursday showing a big 8.3 percent year-on-year gain in April, the biggest rise since January 2001.
That may presage a rebound in industrial production in the months ahead, but for an economic recovery to be sustained, economists say it will require a strong contribution from consumers, particularly with spending on items like cars.
But if the consumer confidence figures are anything to go by, it may be some months before a pickup in sentiment leads to better domestic demand.