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Services sector improves

Expansion is likely to strengthen case for further rate hikes

NEW YORK -- The services sector of the nation's economy expanded in March at a faster rate than in the previous month, a private research group said yesterday. The growth outpaced analysts' forecasts.

The Institute for Supply Management said that its index for nonmanufacturing business activity stood at 60.5 in March, up from 60.1 in February. The reading was higher than the 59.0 that analysts expected. A reading above 50 indicates the sector is expanding; one below 50 indicates activity is contracting. The index is based on a survey of business executives.

The report was the latest sign of strength in the economy and suggests that interest rates could continue to rise. Last month the Federal Reserve disappointed investors by indicating that its credit-tightening could continue further than some had forecast, with at least one and perhaps two more increases in short-term interest rates.

Ralph G. Kauffman, chairman of the ISM's survey committee, said the latest report showed increases in 13 of the 17 nonmanufacturing sectors of the economy, up from 10 that reported increases in February.

March was the 36th consecutive month of expansion in the services sector, a broad area that includes financial services such as banking and insurance as well as restaurants and communications.

Kauffman said that while prices were still a concern for many in the sector, most signs pointed to continued optimism.

Patrick Fearon, senior economist at A.G. Edwards & Sons Inc. in St. Louis said the report confirmed that the services sector -- which makes up roughly three-quarters of all economic activity -- was still showing ''steady growth," despite some concerns about commodity prices edging higher.

Among the industries showing expansion in March were legal services, mining, retail and wholesale trade, finance and banking, utilities, and entertainment. Agriculture and transportation showed the same activity as the prior month, and real estate and health services reported declines.

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