The U.S. service sector in September expanded for the first time since August 2008, growing at a faster pace than expected to take the benchmark index to its highest since May 2008, according to a report released on Monday.

The Institute for Supply Management's services index rose to 50.9 last month from 48.4 in August, above economists' median forecast for a rise to 50.0.

The dividing line between growth and contraction is 50 and the last time the index was above 50 was in August 2008, which was followed by a reading of 50.0 in September, 2008.

The index reading for September, 2009 was the highest since it posted at 51.2 in May, 2008.

This is a good way to start off the week after a sour nonfarm payrolls on Friday, said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. We need to see the service sector doing better because it's such a big part of the economy.

The services sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

U.S. stocks edged up after the data with the benchmark Standard and Poor's 500 index <.SPX> around 1,029 points while U.S. Treasury debt prices were little changed, leaving the benchmark 10-year yield around 3.18 percent.

The U.S. dollar was little changed against other major currencies <.DXY>.

The prices paid component of the index fell to 48.8 in September from 63.1 in August, while the new orders index rose to 54.2 in September from 49.9 in August, its highest since October, 2007.

The employment index rose to 44.3 last month from 43.5 in August. The reading for September was the highest since August, 2008.

The employment component of the ISM data improved, which was a welcome development, and business activity picked up handsomely, Woolfolk said. New orders are also up big. This is a solid report that is consistent with a glass-half-full outlook.

(Reporting by Nick Olivari; Additional reporting by Steven C. Johnson; Editing by Chizu Nomiyama)