Service sector growth picks up in May: ISM

NEW YORK (Reuters) - The pace of growth in the services sector picked up modestly in May while gauges of new orders and employment climbed, according to an industry report released on Friday.

The Institute for Supply Management said its services sector index rose to 54.6 last month from 52.8 in April. The reading came in just above economists' forecasts for 54.0, according to a Reuters survey. The uptick came after April's reading fell sharply to the lowest level since August 2010.

A reading above 50 indicates expansion in the sector. It was the first increase since February, though growth was still off the strong levels seen at the beginning of the year.

The new orders component rose to 56.8 from 52.7, while the employment gauge climbed to 54.0 from 51.9. The prices paid index eased to 69.6 from 70.1, its lowest level since December.

Recent disappointing data, including a much weaker-than-expected manufacturing report earlier this week, raised questions as to whether the softness in the economy is caused by temporary factors or whether it will prove to be more protracted. The services sector accounts for about 70 percent of the economy.

"It is a little ray of hope in an area of gray data," said Rudy Narvas, senior economist at Societe Generale in New York.

"We still view this soft patch of data as temporary. In some sense this may affirm that it is only really impacting the manufacturing sector, given the fact this all seems to be related to the Japanese parts shortage."

U.S. stock indexes trimmed losses immediately following the data but remained down after a much worse-than-expected May U.S. jobs report. The greenback trimmed losses against the yen and U.S. Treasuries prices held steady at higher levels.

(Reporting by Leah Schnurr; Editing by Padraic Cassidy)