The US services sector has compounded fears of a slow economic recovery, with industry data suggesting weaker growth in December than hoped.

The vast sector, encompassing a raft of businesses from banking to entertainment, is responsible for a large part of the US economy.

The Institute for Supply Management (ISM) said its index for December fell to 54.7, down from 57.4 in November.

Growth still isn't strong enough to create jobs Christopher Low, FTN Financial

The figure still indicates growth in the sector but was lower than the 55 level analysts had been anticipating and prompted suggestions that the US is finding it tough to generate meaningful growth.

Job losses

A number on the ISM's index below 50 indicates a contraction of the sector, while above 50 suggests growth.

December was the 11th consecutive month that the services industry enjoyed a positive reading although it has done so at the expense of jobs.

According to the ISM's report, services businesses cut jobs for the 22nd month in a row in December.

"As in manufacturing, growth still isn't strong enough to create jobs," said Christopher Low, chief economist at FTN Financial in New York.

A fragile picture

The ISM's manufacturing index released earlier this month came in well ahead of expectations, suggesting strong gains in all areas of the sector.

[The index] is broadly in line with our view that the economy is still struggling to come out of the soft spot it hit in the fall Anthony Karydakis, Banc One Capital Markets

But economists questioned how long the recovery could last amid conflicting data from elsewhere.

First-time claims for unemployment benefits remained above 400,000 in the last four week period, suggesting rising unemployment.

Meanwhile, the ongoing threat of a war with Iraq has knocked US consumer confidence down to its lowest level in nine years according to the Conference Board's survey.

And in a separate report, the ISM said service sector prices had continued to soften in December as businesses tried to attract customers through discounting.

The ISM services price index fell to 51.5 in December, from 54.0 in November.

Anthony Karydakis, a senior financial analyst at Banc One Capital Markets, said the ISM's index was "broadly in line with our view that the economy is still struggling to come out of the soft spot it hit in the fall".