(Corrects manufacturing sector to service sector in paragraph 3)

NEW YORK - The U.S. service sector grew in June for a sixth straight month but the rate of growth slowed more than expected and hit its lowest since February, according to an industry report released on Tuesday.

The data followed a raft of weak reports in recent weeks on U.S. consumer spending, factory activity, employment, and the housing market that have heightened fears the economy could slip back into a recession.

The Institute for Supply Management said its index of service sector activity fell to 53.8 from 55.4 in May. A reading below 50 indicates contraction in the service sector, while a number above 50 means expansion. The median forecast of 72 economists surveyed by Reuters was for a reading of 55.

The report's employment component fell to 49.7 from 50.4, falling back into a contraction, after turning positive last month and confirming weak reports on the labor market.

On Friday the U.S. Labor Department reported private payrolls rose only modestly in June and overall employment fell for the first time this year as thousands of temporary census jobs ended, indicating the economic recovery is failing to pick up steam.

New orders also fell in the ISM service sector indices, to 54.4 from 57.1, suggesting growth may be moderating, while export orders turned negative.

It's consistent with the general tone of data, suggesting that the pace of growth is a little more moderate, said Charles Lieberman, chief investment officer at Advisors Capital Management LLC in New Jersey.

It's certainly not suggestive of the double-dip scenario that some people are pushing.

U.S. stocks, battered by weeks of declines, continued to enjoy a rebound on Tuesday morning, suggesting investors had more than priced in the data, while safe-haven Treasuries were little changed.


In other data on Tuesday, a gauge of the U.S. job market showed some improvement in June for the eleventh straight month, but at a moderate pace amid weak private sector job creation.

The Conference Board, a private research group, said its Employment Trends Index rose to 96.7 in June, up from a revised 96.1 in May.

The index is up about 9.8 percent from a year ago, the group said.

The weak growth in private sector employment in the last two months has been disappointing given the robust recovery in production in recent quarters, said Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board.

The moderate increase in the Employment Trends Index in the last two months suggests that many employers are now concerned that the recovery is losing momentum.