Ireland's services sector shrank for the first time in a year in December as global economic turmoil undermined confidence and new orders fell sharply, a survey showed on Thursday.

Markit's Purchasing Managers' Index for Irish services fell to 48.4 from 52.7 in November, slipping below the 50 mark that separates growth from contraction for the first time since December 2010.

Managers surveyed said the decline was due to fragile economic conditions and poor business confidence, which fell to its lowest since Ireland signed up to an EU/IMF bailout in November 2010.

New orders among services companies, including IT and telecoms firms, fell to 47.4 from 52.6 in November, the seventh decline in eight months.

Ireland needs its domestic economy to revive if it is to achieve the sort of economic growth rates necessary to make inroads into its debt pile and exit an EU-IMF bailout in 2013.

Fears Europe will tip back into recession due to a worsening debt crisis have already triggered cuts in Ireland's growth outlook for 2012 after the economy contracted at its fastest pace in over two years in the third quarter of 2011.

With new orders falling sharply, more contraction in the services sector can be expected in early 2012 as the domestic part of the economy remains extremely weak, said Brian Devine, economist at NCB Stockbrokers.

Once again, the export component remained above 50 and ultimately, like for the economy as a whole, this will be sufficient to outweigh the drag from domestic demand in 2012, he said.

New orders from abroad increased for the fifth month in a row, but employment fell for the eighth month running.

Businesses in the sector were squeezed as costs rose for the 13th consecutive month, while prices fell at the sharpest rate since August.

(Reporting by Conor Humphries; Editing by Susan Fenton)