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Italy services sector grows slower in October, 2nd month of expansion: PMI

ROME (Reuters) - Italy's services sector expanded at a much slower pace in October, a survey showed on Wednesday, suggesting the euro zone's third-biggest economy is timidly pulling out of its longest recession in six decades.

The Markit/ADACI Business Activity Index, covering companies from banks to hotels, eased to 50.5 from 52.7 in September, but held above the 50 line dividing expansion from contraction for the second straight month.

The result was lower than the median forecast of 51.2 in a Reuters survey of 14 economists. Until September, activity in the services sector had contracted for 27 months in a row.

A corresponding survey for the manufacturing sector showed earlier this week that activity grew for the fourth month running in October, though at a slower pace than in September.

Both figures support recent signs that the economy could finally be recovering from a recession that began in mid-2011.

Still, Italian consumer confidence fell in October for the first time in five months after a value-added tax (VAT) increase, which may also have weighed on services providers, Markit economist Phil Smith said.

"The slowdown was perhaps to some extent pay-back for such a solid rate of expansion in September, but there were also a number of headwinds facing the economy in the past month, not least the VAT rise," Smith said.

Prime Minister Enrico Letta had promised to cut taxes next year to help lift growth, but the 2014 budget presented last month fell short of expectations as the government sought to keep Italy's public finances in line.

Services make up around 70 percent of Italian gross domestic product, including public services not covered in the survey.

Growth in new business also slowed, with the related sub-index easing to 50.7 from September's 52.9 - the first figure above 50 in 2-1/2 years. Private services providers shed jobs faster than the previous month, extending a more than two-year slide.

Business expectations among services firms weakened in October, though they remained positive, and prices charged by service providers declined for the 27th month running, Markit said.

(Reporting by Steve Scherer; Editing by Hugh Lawson)

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