UPDATE 1-US service sector slows to 2-1/2-yr low in June-ISM

Thu Jul 5, 2012 7:58pm IST

NEW YORK, July 5 (Reuters) - The pace of growth in the U.S. services sector slowed in June to its lowest level since January 2010 as new orders waned, though employment improved, an industry report showed on Thursday.

The Institute for Supply Management said its services index fell to 52.1 from 53.7 in May, shy of economists' forecasts for 53.0, according to a Reuters survey.

A reading above 50 indicates expansion in the sector.

The new orders component slipped to 53.3 from 55.5, while the employment measure rose to 52.3 from 50.8.

The gain in employment was a heartening sign coming a day ahead of the government's more comprehensive labor market report.

"With the drop in new orders and a rise in employment, that's an indication that companies might be adding workers with productivity slowing. They are hiring even if they don't want to," said Gus Faucher, senior macroeconomist at PNC Financial Services in Pittsburgh.

The gauge of new orders for exports contracted to 49.5 from 53.0, suggesting the euro zone debt crisis was hampering demand.

U.S. stocks held losses immediately following the data, while Treasuries prices extended gains. Financial markets were taking in a series of moves by central banks overseas to try to tackle a downturn in economic activity.

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