Ireland's services sector - which employs two-thirds of the workforce - grew strongly in March, but cost pressures on firms continued to intensify, according to the latest Purchasing Managers' Index (PMI) for the sector.

A parallel index published yesterday shows services activity remaining strong in the euro zone, prompting predictions that the European Central Bank (ECB) will be more eager to raise interest rates.

When adjusted for seasonal patterns, the Irish index, published by NCB stockbrokers yesterday shows the March reading for business activity index was well above the benchmark value of 50.0 that separates growth from decline. At 61.4, the reading was, however, down slightly on February's reading of 62.7.

"Growth remains very strong and very much in line with the average pace seen in the past two years. Growth in new and outstanding business is robust, confidence remains high and employment continues to rise at a sharp rate," NCB chief economist Dermot O'Brien said yesterday.

The index for average input prices reached 65.9 in March, up from 65.0 in February and suggesting rising business activity continues to cause a scarcity of materials and labour. "Many firms commented that higher input costs reflected upward pressures on staff salaries," it states.

From a February reading of 54.5, the reading for average prices charged edged upwards to a March reading of 54.9, its highest reading since June 2002.

Euro-zone services business activity fell to 57.4 in March from 57.5, but stayed clear of the 50.0 mark, research firm NTC/RBC said yesterday. "The euro zone services sector remains comfortably in expansion territory," said Richard McGuire at RBC. "There is no reason for the ECB to abandon its tightening path yet."