The mixed messages give little clarity over prospects for Italy's so far weak economic recovery, but national statistics bureau ISTAT says business confidence is a significantly better pointer to economic growth trends than consumer morale.

ISTAT's manufacturing confidence index dropped to 103.2 in January from 104.0 in December.

That was the lowest level since August last year and well below the median forecast of 103.9 in a Reuters survey of 15 analysts.

ISTAT's composite business morale index, combining surveys of the manufacturing, retail, construction and services sectors, fell much more sharply to 101.5 from 105.6 in December.

That marked the third consecutive drop and was the lowest reading since February 2015. Overall business morale was dragged down by extremely steep falls in sentiment in the services and retail sectors.

Consumer confidence, on the other hand, climbed to 118.9 from 117.7 the previous month to reach its highest level since the current series began in 1995, ISTAT said.

A Reuters poll had forecast a decline to 117.0.

Consumer morale has risen steadily over the last year, buoyed by tax cuts adopted by Prime Minister Matteo Renzi, although it retraced slightly in December in the wake of militant attacks in Paris the month before, which killed 130 people.

(Reporting by Gavin Jones)