NEW YORK - The pace of job losses in the private sector slowed in January as employers reported the smallest payroll decline in nearly two years, while the dominant services sector grew slightly, data showed on Wednesday.

A separate report showed demand for home loans hit a six-week high last week as borrowers scrambled to lock in mortgage rates ahead of an expected increase this year.

A report by ADP Employer Services showed the United States lost 22,000 private sector jobs last month, smaller than the 61,000 jobs lost in December and below economists' forecasts of a 30,000 loss in January. December's decline was first reported at 84,000.

January's tally was the lowest since February of 2008, according to the ADP report, developed jointly with Macroeconomic Advisers LLC.

The trend continues to get less worse. This is consistent with job growth returning in the United States, said Dave Sloan, senior economist at 4Cast Ltd in New York. I do believe the U.S. economy is now strong enough to create jobs.

Stock indexes were little changed after the data, although they later fell on disappointing results from drug maker Pfizer Inc, while government bond prices fell slightly on the view that U.S. economic health is improving.

The Institute for Supply Management said its index of the vast services sector rose to 50.5 last month from 49.8 in December. That was a touch below economists' 51.0 expectation but above the 50 level that indicates expansion.

Still, job growth in the sector, which accounts for the majority of employment, remained negative, suggesting a protracted recovery.

The employment component was up but still showed contraction. We are not at the point where service sector jobs are being created, said Gary Thayer, chief macrostrategist at Wells Fargo Advisors in St. Louis.

Conditions appear a bit rosier in the much smaller manufacturing sector. Earlier this week, ISM's manufacturing index showed the sector grew at its fastest pace last month since 2004.

HOME LOAN DEMAND UP, JOB OUTLOOK IMPROVING

The Mortgage Bankers Association said on Wednesday its mortgage index jumped 21 percent last week to a six-week high as borrowers moved to lock in rates before an expected push higher this year.

The 30-year mortgage rate dipped 0.1 percentage point to 5.01 percent, though that was still 0.40 percentage point above the record low set in March.

On the employment front, Marcroeconomic Advisers Chairman Joel Prakken said the ADP report's February edition, due next month, is likely to show employers added jobs.

The climate has really improved quite dramatically, he said. I actually do expect that when we meet next month to discuss the (ADP) report for February's data that we'll be talking about an overall number that actually is positive.

The ADP data comes two days before the government releases its more comprehensive nonfarm payrolls report. It is expected to show employers began hiring again in January, adding 5,000 jobs after shedding 85,000 the prior month.

The United States lost jobs during every month in 2008 and in 11 of 12 months in 2009.

A report from consultancy Challenger, Gray & Christmas, Inc showed planned layoffs at U.S. companies rose to a five-month high in January. Cuts were concentrated in retail, which the firm said tends to struggle in January, one of the slowest months of the year.

The increase (in planned layoffs) is not necessarily a sign of a recession relapse, said John Challenger, chief executive of Challenger, Gray & Christmas. It is not uncommon to see a surge in job-cut announcements to begin the year.

(Additional reporting by Burton Frierson, Ellen Freilich, Richard Leong and Lynn Adler; Editing by Dan Grebler)

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