U.S. services sector slows; private payrolls increase

WASHINGTON (Reuters) - U.S. services industry activity slowed for a second straight month in October, suggesting some loss of momentum in the economy early in the fourth quarter.

Still, the economy remains on solid ground as other data on Wednesday showed a pick-up in private sector hiring last month.

The Institute for Supply Management said its services index fell to 57.1 last month from a reading of 58.6 in September, drifting further from August's post-recession high of 59.6.

Nevertheless, the survey showed the key services sector, which accounts for roughly two-thirds of the economy, remained solidly in growth mode. A reading above 50 indicates expansion.

"The recent moderation in the surveys is broadly consistent with our view that growth cooled off between the third and fourth quarters," said Daniel Silver, an economist at JPMorgan in New York.

Separately, the ADP National Employment Report showed private payrolls increased by 230,000 in October, for a record seven straight months of job gains exceeding 200,000. Private hiring had risen 225,000 in September.

Job gains last month were broad-based, with mid-sized businesses adding the most workers in more than seven years.

"The economy is growing fast enough to bring the unemployment rate down for the right reasons," said Chris Rupkey

chief financial economist at MUFG Union Bank in New York.

The employment data helped to lift stocks. Investors also were cheered by midterm elections that put the Republican Party, considered more friendly to business, in control of the Senate.

The dollar was trading higher against a basket of currencies, while prices for U.S. government debt fell.

A strengthening labor market is seen tempering some of the anticipated economic slowdown, which is driven in part by weakening global demand, especially in key markets like China and the euro zone.

Data ranging from consumer spending, trade and business spending suggest the economy exited the third quarter with less steam, setting it up for a further moderation in the final three months of the year.

Third-quarter gross domestic product was initially estimated to have expanded at a 3.5 percent annual pace, but the weak trade data implied growth would be lowered to around a 3 percent rate.

The ADP figures come ahead of the U.S. Labor Department's more comprehensive nonfarm payrolls report on Friday, which includes both public and private sector employment.

Economists polled by Reuters are looking for total U.S. employment to have grown by 231,000 jobs in October, down from 248,000 in September, with private-sector hiring seen at 222,000 compared with 236,000 the month before.

Despite the pullback in services activity last month, employment growth was robust.

ISM's employment index rose to 59.6, the highest since August 2005, compared with 58.5 in September. Services-sector employment has rebounded rapidly in the last several months from a four-year low touched in February, when a harsh U.S. winter contributed to a sharp slowdown in economic activity.

(Reporting by Lucia Mutikani and Dan Burns; Editing by Andrea Ricci)