updated 8/5/2008 10:11:23 AM ET 2008-08-05T14:11:23

The U.S. service sector contracted in July as new orders decreased and prices rose, stifling growth for truckers, retailers and insurers. Still, the reading was better than expected and stocks rose on the news.

Major Market Indices

The Institute for Supply Management, a trade group of purchasing executives, said Tuesday its reading of the service sector was 49.5 in July, up from 48.2 in June. It beat economists' prediction of a reading of 49.0, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR.

A reading below 50 signals contraction, while a reading above 50 indicates growth.

In morning trading, the Dow Jones industrial average rose 161.53 to 11,445.68. The Nasdaq composite rose 31.01 to 2,316.57 and the Standard & Poor's 500 rose 16.80 to 1,265.81.

The industries that grew include entertainment, recreation, scientific and technical services, utilities, hotels and restaurants.

The survey showed that prices continued to rise, but at a slower rate than in June.

In a good sign, companies' order backlogs grew in July. New export orders fell, however.

David Noah, president of InterMart Inc., an eight-person import-export software company, said sales are flat and "it's taking longer for companies to pull the trigger on a purchase."

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