Services downturn worsens in Dec but hiring picks up

BANGALORE (Reuters) - Activity in India's services sector shrank at a faster pace last month as new orders dwindled, but firms hired at their fastest in five months, a survey showed on Monday.

The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, fell to 46.7 in December from 47.2 in November.

The December reading is the lowest in three months, and the index has now stayed below the 50 mark that divides growth and contraction for the sixth straight month.

"The service sector continues to face headwinds, with weakening new business dragging down activity," said Leif Eskesen, chief economist for India at survey sponsor HSBC.

The new orders index fell to 47.3 last month from 48.2 in November, and has also remained below the 50 mark for six months.

While previous surveys pointed to the softness in demand levelling off, a fall last month will raise more doubts about the speed at which the economy will recover from its decade-low pace of growth.

A long struggle to contain inflation with high interest rates, government policy paralysis and fragile global demand have put India in a rut of slowing growth.

But the pickup in the pace of hiring, as the PMI suggests, will provide some cheer. The December employment sub-index rose to its highest since July, after four months of showing a stagnant labour market.

In addition, price pressures grew at a slower pace last month, while business optimism rose. The expectations index hit its highest since July.

A similar survey last week showed India's factories lost momentum last month as softness in new domestic orders prompted firms to lower production growth, but demand from abroad picked up.

(Reporting by Yati Himatsingka; Editing by Kim Coghill)