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U.S. service sector grows at fastest pace in a year

Transparent Container workers prepare freshly moulded packaging at the company's manufacturing plant in Addison, Illinois, February 21, 2013.

JOHN GRESS/REUTERS

The pace of growth in the vast U.S. services sector accelerated to its fastest pace in a year in February, helped by a rise in new orders and demand for exports, an industry report showed on Tuesday.

The Institute for Supply Management said its services index rose to 56 from 55.2 in January, exceeding economists' forecasts for 55. It was the highest level since February 2012.

A reading above 50 indicates expansion in the sector.

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The new orders index jumped to 58.2 from 54.4, while orders for exports rose to their highest level since May 2007 with that gauge at 60.5, up from January's 55.5.

After hitting an intraday record at the open on Tuesday, the Dow Jones industrial average extended gains after the service sector data.

"This was no question a positive number," said Michael Woolfolk, senior currency strategist at BNY Mellon. "It reflects improvement in reinforces the view that the economy continues to improve and should contribute to gains that have driven the stock market to a new record."

The measure of the backlog of orders was at its highest since May 2011 at 54.5 against 49. But the employment index weakened slightly, edging down to 57.2 from 57.5 in January.

The service sector appeared to be expanding despite U.S government belt-tightening and higher payroll taxes that have reduced consumers' disposable income.

Earlier, ISM's manufacturing sector report, released last week, showed U.S. factories grew at their fastest rate in 20 months in February.

"All in all, the data fits with the message from manufacturing ISM that the supply side of the economy is navigating the early stages of recent fiscal tightening remarkably well, and presumably is not seeing a significant slowing in demand," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.

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