updated 5/5/2008 1:12:08 PM ET 2008-05-05T17:12:08

The nation’s service economy unexpectedly expanded in April after contracting for the previous three months.

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Some analysts saw the report as an aberration, since it deviated from recent data showing weakness in employment, as well as automobile sales and chain-store sales.

The Institute for Supply Management’s index of the service sector released Monday showed a better-than-expected reading of 52 for April, up from 49.6 in March. Wall Street economists surveyed by Thomson Financial/IFR had expected a reading of 49.3.

A reading above 50 indicates the sector is growing, while a reading below 50 indicates contraction.

Citigroup Inc. economist Steven Wieting said he took the reading with a grain of salt, saying the services report the group puts out “has a much more limited history” than its long-running and important manufacturing index.

“Some of the industries that showed up in the ’improving’ column were construction and real estate,” Wieting said. “I’m sure we’re going to see that someday. I’d just like confirmation.”

Twelve industries reported growth, including real estate, agriculture, wholesale trade, public administration and education. The six that reported contraction included transportation, hotels and health care.

The services sector accounts for almost 80 percent of the nation’s economy. The services index fell steeply in January to 44.6, its first drop below 50 since March 2003, and was below 50 in February and March.

The Institute for Supply Management’s recent reading of the manufacturing sector contracted in April, stalled near its lowest level in five years.

Even with the positive reading for the service economy, “I think it indicates that the non-manufacturing sector is bordering on zero growth,” said Dan Meckstroth, chief economist of the Manufacturers Alliance, a trade group. “It fits with a scenario of a very mild recession.”

Stocks, which traded lower when the data were released, dropped further as oil topped $120 a barrel. In midday trading, the Dow Jones industrial average was down 86.30, or 0.66 percent, to 12,971.90. The Standard & Poor’s 500 index was down 6.67 to 1,407.23 and the Nasdaq composite index fell 11.38 to 2,465.61.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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