U.S. services sector grows, job losses slow

By Kristina Cooke

NEW YORK (Reuters) - The U.S. services sector grew modestly for a second month in a row in October and private sector employers cut jobs at the slowest pace in more than a year, adding to signs the economy is crawling back to health.

The Federal Reserve -- the U.S. central bank -- at the end of a two-day policy-setting meeting on Wednesday nodded to improving economic data but said it would still keep borrowing costs near zero for "an extended period" as recovery will likely be sluggish.

The weak U.S. economy is having political repercussions. Voters voicing fears about the economy elected Republicans in state governor races in Virginia and New Jersey on Tuesday, in contests that analysts said served as a warning shot to Democrats looking ahead to 2010 voting.

The services sector, which represents about 80 percent of U.S. economic activity, grew in October, but the growth was less than forecast and the survey's employment index disappointed analysts.

"On balance, the non-manufacturing survey suggests that economic growth is continuing at a moderate pace, but that the labor market is still in rough shape," JPMorgan Chase analysts wrote in a note to clients.

The Institute for Supply Management's U.S. services data followed European surveys showing service sector activity expanded at its fastest in 22 months in October in the euro zone, and in Britain at its briskest since August 2007, when the global credit crunch struck.

The ISM services index slipped to 50.6 last month from 50.9 in September, below economists' median forecast for a rise to 51.5. A reading above 50 indicates growth. The employment index fell to 41.1 in October from 44.3 in September.

A separate report showed that while companies are still cutting jobs, they are doing so at a slower pace.