U.S. service sector shrinks less in June: ISM

NEW YORK (Reuters) - The U.S. service sector contracted in June, but at a slower pace than in May, according to a report released on Monday.

KEY POINTS: * The Institute for Supply Management's services index rose to 47.0 last month from 44.0 in May, above economists' median forecast for a rise to 46.0. The dividing line between growth and contraction is 50. * The services sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

COMMENTS:

DAVID WATT, SENIOR CURRENCY STRATEGIST, RBC CAPITAL

MARKETS, TORONTO:

"The key figure that jumps out is the employment index which rose 43.4 from 39 in May. If this data came out before the June U.S. payrolls, people would have paid more attention and would have said job losses would be 250,000. But since this came out after payrolls, the price action in FX has been relatively minor. Based on this report, things are sort of getting better, but the market is still cautious."

OMER ESINER, FX MARKET ANALYST, TRAVELEX GLOBAL BUSINESS

PAYMENTS, WASHINGTON:

"On balance, it was better then expected, and that will prompt the dollar to pare some of its overnight gains. We are seeing the market lose some of its recent optimism, though, and re-balance its outlook for the global economy. Over the longer term, I think that will continue to benefit the dollar and the yen and undermine the Aussie, pound and Canadian dollar, which had been the best performing currencies in the second quarter."

CARL LANTZ, U.S. INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW

YORK:

"ISM was a little stronger than expected and the details were pretty solid, with the employment number improving. The non-manufacturing ISM tends to track payrolls pretty well, which suggests that perhaps July won't be as bad as June on that front. And, the new orders component improved.

"The details look fairly good. There is a bit of a negative reaction in bonds, especially ahead of supply."

PETER JANKOVSKIS, DIRECTOR OF RESEARCH, OAKBROOK INVESTMENTS

LLC IN LISLE, ILLINOIS:

"It looks like it was a stronger number than expected and continuing the upward path on services. As always with the ISM service number they are looking for something above 50 eventually to show us that that particular sector is growing. The services sector is the more important of the two given that the vast majority of jobs in the US are service as opposed to manufacturing."

ALAN GAYLE, SENIOR INVESTMENT STRATEGIST, RIDGEWORTH

INVESTMENTS, RICHMOND, VIRGINIA:

"The ISM data is an encouraging sign that the services area is bottoming. Clearly we're in need of good news right now and getting some sense of bottoming in the services area is very encouraging.

"The data will be a big positive for the market today. After the jobs report last week, which threw cold water on the market, better-than-expected services will be encouraging news. The markets were down pretty sharply in the premarket, and it does look like this is helping provide some stability. Usually the ISM index isn't the main story for the day, but given the sharp sell-off, its very possible this could be today."

GARY THAYER, SENIOR ECONOMIST, WELLS FARGO ADVISORS, ST. LOUIS,

MISSOURI:

"It's a good number, not quite showing expansion yet, but rising closer to that 50-level that divides contraction from expansion.

"It's a significant improvement from what we saw late last year and early this year when the service sector looked to be contracting nearly as much as the manufacturing sector."

TODD CLARK, MANAGING DIRECTOR OF STOCK TRADING, NOLLENBERGER

CAPITAL PARTNERS, SAN FRANCISCO:

"Much better than expected number, it's almost above 50, which would show the economy is actually growing. Non-manufacturing is the largest sector of the economy so it's definitely really good news. Definitely better, particularly on the heels of Thursday's employment number, which got everybody gloomy."

MARKET REACTION: STOCKS: U.S. stock indexes pare losses BONDS: U.S. Treasury debt prices add to losses DOLLAR: U.S. dollar pares losses versus the yen