NEW YORK (Reuters) - The U.S. services sector expanded in January although the pace slowed slightly from the previous month, with robust jobs growth offsetting slowness in new orders, according to a report released on Tuesday.
The survey was consistent with a moderately growing economy, economists said, and helped allay fears that the 0.1 percent contraction in U.S. economic growth in the fourth quarter might turn into something more lasting.
"The headline index is still consistent with a rebound in annualized GDP growth from the 0.1 percent fall in the fourth quarter to around a 2.5 percent rise in the first," Paul Dales, senior U.S. economist at Capital Economics in Toronto, said in a note.
The jump in the employment index, which hit its highest in seven years, pointed to a labor market that should continue to strengthen in the months ahead.
"The most striking development was the rise in the employment index," Dales said. "This supports the evidence from January's payrolls report that the lingering fiscal uncertainty doesn't appear to be damaging hiring too much."
The Institute for Supply Management said its services sector index eased slightly to 55.2 last month from 55.7 in December. The reading was in line with economists' forecasts, according to a Reuters survey.
A reading above 50 indicates expansion in the sector, while one below 50 indicates contraction. The index was last below 50 in December 2009 as the U.S. economy was beginning to recover from the financial crisis and recession.
The employment sub-index was at its highest since February 2006, rising to 57.5 in January from 55.3 in December.
U.S. stocks were higher after the news but much of the rise was a rebound from their worst daily loss since November in the prior session. The S&P 500 index .SPX rose 0.9 percent.
The growing services sector chimed with a separate report that showed U.S. home prices rose for a 10th consecutive month on a year-over-year basis in December, posting their biggest gain in more than six years. The report was released by data analysis firm CoreLogic.
However, there were some signs of weakness in the ISM survey's other underlying components. The new orders index, seen as a forward-looking measure, was at its lowest since April 2012, falling to 54.4 in January from 58.3 the month before.
The business activity index also fell, dipping to 56.4 from 60.8 the month before and hitting its lowest since August 2012.
"Respondents think inventories are a bit high," Anthony Nieves, chair of ISM non-manufacturing business survey committee, said in a conference call on Tuesday. "But the majority are feeling a little more confident about the outlook."
(Additional Reporting By Ellen Freilich; Editing by Chizu Nomiyama)