India services PMI hits 10-month high in December

REUTERS - Growth in India's services firms rose at its fastest pace in 10 months in December as demand picked up, a business survey showed on Wednesday.

The Nikkei/Markit Services Purchasing Managers' Index surged to 53.6 in December from November's 50.1, marking a sixth month above the 50-level that separates growth from contraction.

That should provide some comfort to policymakers after a related survey showed India's factory activity contracted for the first time in more than two years on dwindling demand.

But demand for Indian services was up in December.

Indeed, the latest survey showed the new business sub-index, which measures demand, rose to 53.8 in December from 51.0 the prior month.

On outlook, firms were positive, with the business expectations sub-index back to above 50 after it surprisingly contracted in the prior month. Still, the latest reading for expectations was the second-lowest in the history of the survey.

"A stronger rise in new business and an improvement in year-ahead expectations at service providers are positive developments, but the overall health of the economy remains fragile amid a weak manufacturing sector," said Pollyanna De Lima, economist at Markit.

On threats of a sharp slowdown in Asia's third-largest economy, the government may run a higher budget deficit to stimulate demand.

The PMI survey showed December was not very different for job creation compared to previous months. Indeed, the employment sub-index has more or less hovered around the 50-mark throughout 2015.

"Firms' reluctance to hire was evident throughout 2015, with meaningful job creation last recorded in 2013. This suggests that conditions are likely to remain challenging in the near-term," De Lima said.

(Reporting by Krishna Eluri; Editing by Richard Borsuk)