The services sector continued to expand at a strong pace in December, supported by new business growth, according to the latest NCB Purchasing Managers' Index (PMI).

At 59.2 in December, the index was up slightly from 58.8, pointing to a slight improvement in the pace of expansion since November. Any reading above 50 on the index signals expansion.

However, the index was at a lower level than the overall average for last year of 62.2.

"After easing a little in November, growth in private services activity rebounded in December, with stronger gains in new orders and a rising backlog of work. Confidence in the sector continues to run at a high level and employment growth remains impressive," said Dermot O'Brien, chief economist at NCB Stockbrokers.

The launch of new products and services contributed to strong growth of service providers' new business volumes in December, NCB Stockbrokers said.

The rate of expansion improved from November's 17-month low and was broadly in line with the average for the current growth period that began in June 2003, it said.

Services companies signalled a 43rd successive monthly increase in business activity last month. Anecdotal evidence suggested that higher new order levels supported the latest growth.

Employment at service companies rose for the 40th month in a row, with these businesses hiring staff in response to higher new order volumes and as part of company expansion plans. However, the rate of job creation eased for the third consecutive month and was the weakest since January of last year.

The impact of a series of price rises hit companies last month, with input costs increasing sharply.

Companies reportedly faced higher staff costs, electricity bills and raw material prices.

However, the rate of cost inflation eased since November and was below the average for last year.

Companies also registered the sharpest increase in output prices for 4½ years in December.

Reports from companies suggested that higher input costs and greater demand contributed to the robust increase in prices charged.

Output prices have now risen for 18 months in a row.

However, optimism remained strong amongst Irish service providers in December, with more than 55 per cent of companies surveyed anticipating that business activity would be higher in a year's time.