US service sector growth slows

Growth in the US economy’s vast services sector slowed last month, held back in part by supply disruptions caused by Japan's earthquake, an industry report has showed.

After hitting a five-year high in February, the Institute for Supply Management's index of non-manufacturing activity slipped back in March and prices eased.

The index dipped to 57.3 in March from 59.7 the previous month, below economists' forecasts for a 59.5 result.

CMC Markets analyst Michael Hewson said the stock market had expected more.

"Today’s US ISM non-manufacturing data for March was a disappointment, coming well below expectations and with business activity dropping nearly six points from 65.5 to 59.7," he said.

Nonetheless, the services sector, which accounts for about 80 per cent of the U.S. economy, posted a 16th straight month of growth.

The survey could strengthen the case of some top Federal Reserve officials who argue the US economy is not yet strong enough to warrant removing the massive support provided by the central bank.

On Monday, Federal Reserve Chairman Ben Bernanke said a spike in US inflation was being driven by commodity prices and would probably not last.

The ISM's manufacturing report last week showed rising commodity costs pushed prices to their highest since mid-2008.

"It suggests that we are still in expansion mode, but things are slowing down a little bit," said Rudy Narvas, senior economist at Societe Generale.

"The data on balance has been sort of mixed. A lot of people are downgrading their first quarter growth estimates, and we are as well."