U.S. service sector growth gains modestly in July: ISM

Job seekers listen to a recruiter speak at a New York State Department of Labor recruitment office in New York January 6, 2010.

NEW YORK (Reuters) - The pace of growth in the vast services sector edged up in July as new orders gained, but employment fell to its lowest level in nearly a year, according to an industry report released on Friday.

The Institute for Supply Management said its services index rose to 52.6 last month from 52.1 in June, topping economists' forecasts for 52.

A reading above 50 indicates expansion in the sector.

"This is in line with the idea that longer term, we're still seeing slow but steady growth," said Mike Shea, a managing partner and trader at Direct Access Partners LLC in New York.

Forward-looking new orders advanced to 54.3 from 53.3, while exports rose to 51 from 49.5, a move to expansion from contraction.

But the employment gauge shrank, falling to its lowest level since September 2011 at 49.3 from 52.3. It was also the first time the index has contracted since December.

The ISM report followed Labor Department data on Friday showing employers hired the most workers in five months in July, though the unemployment rate rose to 8.3 percent.

U.S. stocks held gains immediately after the ISM data, while Treasuries prices maintained losses and the euro climbed to a session high against the dollar.

Overseas, separate data showed activity among euro zone companies contracted again last month as new orders dropped sharply, while China's services sector expanded.

(Reporting by Leah Schnurr; Editing by Kenneth Barry)