ISM October service growth exceeds expectations

Waitress Jeanine White serves diners at Tony's I-75 Restaurant in Birch Run, Michigan, October 15, 2006. Growth in the service sector exceeded expectations in October, according to a report released on Monday.

NEW YORK (Reuters) - Growth in the service sector accelerated in October for the first time in four months, exceeding expectations, as new orders improved while prices eased, according to a report released on Monday.

The Institute for Supply Management's services index rose to 55.8 in October from 54.8 in September. Economists polled by Reuters had forecast a median result of 54.0 for October.

A number above 50 indicates growth in the sector, which represents about 80 percent of U.S. economic activity and includes businesses such as restaurants, hotels, banks and airlines.

On Wall Street, shares .DJI .SPX .IXIC cut their losses after the report, as did the dollar against the yen. Government bonds, which usually benefit from signs of economic weakness, pared gains after the data.

"The numbers are pretty good. It suggests the service sector is growing at a decent pace so the economy is not in too much trouble overall, at least for the moment, despite the weakness in housing," said David Sloan, an economist at 4Cast Ltd in New York.

The new orders index rose to 55.7 in October from 53.4 in September. Presenting good news for investors worried about inflation, the prices paid index fell to 63.5 from 66.1 in September. The employment index eased to 51.8 from 52.7.

(Reporting by Burton Frierson, additional reporting by Chris Reese)