Australia service sector contracts in April

SYDNEY, May 5 (Reuters) - Australia's services sector hit an air pocket in April as rising borrowing and fuel costs dampened customer demand, a private survey showed on Monday.

The Australian Industry (Ai) Group-Commonwealth Bank Performance of Services Index (PSI) fell 7.6 points to 47.3, the lowest reading in more than a year and below the 50 line marking the threshold between expansion and contraction.

Activity fell sharply in retail trade, finance & insurance and transport & storage, overwhelming growth in other sectors.

"The combination of rising interest rates, high petrol prices, volatile financial markets and the accompanying dent in consumer and business confidence is starting to bite," said Michael Blythe, chief economist at CBA.

The Reserve Bank of Australia (RBA) raised interest rates to a 12-year high of 7.25 percent in March as it battled to restrain inflation.

The impact on demand was evident in the survey's measure of sales which slumped to 43.6 in April, from 57.8 in March. The measure of new orders also fell back heavily to 43.6, from 58.1 in March.

The employment index dipped 1.0 point to 51.1, but at least held above the 50 threshold. The government's labour report for April is due on Thursday and analysts are expecting a moderate increase of 10,000 in net new employment. Growth in wages eased a little as did selling prices, though input prices remained high. (Reporting by Wayne Cole; Editing by Jonathan Standing)