PARIS (Reuters) - French business activity slowed unexpectedly in March as a recent rebound ran out of steam in the face of deteriorating demand, a monthly survey showed on Friday.

Data compiler IHS Markit said its preliminary composite purchasing managers index fell to 48.7 from 50.4 in February, falling short of economists' expectations for a reading of 50.7.

The decrease brought the index below the 50-point threshold demarcating an expansion in activity from a contraction as both the services and manufacturing sectors saw activity decline.

The flow of new orders deteriorated especially for the export market, where client orders slowed the most since nearly three years. As a result, job creation growth slowed to a near standstill.

"When you look at forward indicators, there is definitely a heightened risk of renewed down turn in France," IHS Markit chief business economist Chris Williamson told Reuters.

Until March, business confidence had been recovering after falling sharply in December as France faced a series of violent protests initially against a planned fuel tax hike and the high cost of living.

Rioters rampaged through central Paris smashing shop windows and burning cars before President Emmanuel Macron offered a package of concessions worth more than 10 billion euros ($11.36 billion), which has helped ease tensions - until a flare-up again last Saturday.

Breaking the March PMI data down by sector, IHS Markit said the index for service providers fell to 48.7 from 50.2 in February, while economists' forecast on average 50.7.

In manufacturing, the index fell to 49.8 from 51.5, with economists also expecting a stable reading of 51.5.

(Reporting by Leigh Thomas, editing by Larry King; leigh.thomas@thomsonreuters.com; +33 1 4949 5143)