INSTANT VIEW: U.S. service sector expands in August

NEW YORK (Reuters) - The U.S. service sector expanded slightly in August, according to a report released on Thursday.

KEY POINTS: * The Institute for Supply Management said its non-manufacturing index came in at 50.6 for August from July's 49.5. A reading above 50 signals expansion. * Economists expected an unchanged result of 49.5, according to the median of forecasts in a Reuters poll. The majority of the 79 forecasts ranged from 48.5 to 50.5. * The service sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

COMMENTS:

JOHN CANAVAN, MARKET ANALYST, STONE & MCCARTHY IN PRINCETON,

NEW JERSEY:

"From a bond market perspective it was not a major story. It was a little stronger than expected. Treasuries prices have backed off a bit from their highs of the day."

ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS, NEW

YORK:

"This report does post a rise in the index this month, but it's not a good report and it's a weak report for exports and jobs. The job component, however, has been way off the official figures recently."

KURT BRUNNER, PORTFOLIO MANAGER, SWARTHMORE GROUP,

PHILADELPHIA, PENNSYLVANIA:

"Still in expansion territory, so I think its obviously more positive than negative. It shows that the service sector appears to be still hanging in there. I think it reflects that the economy is still not in great shape, but by the same token not falling off a cliff and that we do continue to bounce along here. But we've gotten through the stimulus checks and I think we will see more deterioration going forward. We're not in an ugly environment but we're not in a great environment either."

JOSHUA SHAPIRO, CHIEF U.S. ECONOMIST, MFR, INC., NEW YORK:

"Like most information released of late, the underlying trend of the ISM non-manufacturing data is consistent with an economy that is losing momentum, with weakening domestic fundamentals temporarily camouflaged in Q2 by the transitory impact of tax rebates along with an outsized contribution to growth from net exports that is not likely to be replicated in magnitude in Q3 or beyond."

"With economic activity in the late spring and early summer temporarily boosted by the tax rebates, it is not terribly surprising to see indices such as this one, which reflect economic conditions, also to receive a lift. We look for some retracement in the months ahead."

ANTHONY NIEVES, CHAIR, ISM NON-MANUFACTURING BUSINESS SURVEY

COMMITTEE, LOS ANGELES:

"It looks like a good report. It's what was expected based on the data we saw last month and in terms of where the price of oil was going and what type of impact that might have on this report. The only dent I see is the employment index, but overall it's a very strong report given what's going on in the economy.

"Employment is still contracting faster month over month. That's a lagging index because of the cycle time. Companies are going to have to see a trend of upward movement in business activity to really feel comfortable with hiring in any kind of sustained fashion. Member comments indicate that they've been geared toward (workforce) reduction as business slowed down. Business activity would have to improve for a few months -- that is the four indexes that make up the composite would have to move up together -- before employment will move up."

PETER MORICI, PROFESSOR, UNIVERSITY OF MARYLAND, COLLEGE PARK,

MARYLAND:

"This is a pretty good report. The headline shows the service sector is continuing to expand. The new orders number is encouraging. But I wouldn't worry about the activity and employment numbers. We know they are weakening. Numbers like these show that the slowdown is mild."

MARKET REACTION: STOCKS: U.S. equity indexes held losses BONDS: U.S. Treasury prices trimmed gains DOLLAR: U.S. dollar extended gains versus euro RATE FUTURES: Fed fund futures were steady, pricing in a 6 pct chance of a rate hike in September.