The services sector of the economy has rebounded, with activity and order books expanding in January. NCB's monthly Purchasing Managers' Services Index recorded the second successive monthly rise in activity at 56.3 per cent.

The index is compiled from questionnaires sent to 600 private Irish services companies to report on trends in their activity. In January, these firms reported significant growth in new business, and rising optimism.

Senior NCB Stockbrokers economist, Mr Eunan King, said the January out-turn boded well for overall economic prospects this year. "Growth in the service sector accelerated in January. Since this sector accounts for 65 per cent of employment, it bodes well for overall economic prospects this year," he said.

Profit margins continue to remain under pressure though, as increases in charges are rising more slowly than costs, according to the firms.

The rate of growth in incoming new business was at its sharpest in January, and compares with levels last seen in February 2001. Employment levels in the sector fell for the fourth successive month.

A marked rise in output price inflation was also noted last month, reflecting sustained pressure on wages, the weak euro's inflationary effect on import prices and the transitional costs of the change to euro notes and coins.