War in Iraq has been identified as one of the chief causes of slower growth in the services sector last month.

The NCB purchasing managers' services index fell to 50.3 in March from 51.2 for the previous two months, although crucially it remained above the 50 point mark dividing positive and negative growth.

Although activity hit its lowest level since December 2001, respondent firms were generally optimistic about the future.

Levels of incoming new business climbed - but at the most sluggish rate since November 2001.

Ominously, employment in services fell for the ninth consecutive month to 49.1. Sluggish new business and pressure on margins were the major factors. Only financial services saw an increase in recruitment.

Technology, telecoms and media posted the heaviest jobs losses, slumping to 47.8.

But business confidence is robust at 71. 9, from 70.1 in February. Optimism is highest in telecoms and technology, and lowest in business services.

Inflation continues to dog the services industry, although it has moderated since February. The cost pressures index decreased to 61.5 from 63.1.

Analysts said the findings underline the extent to which conflict in the Middle East is casting a shadow over the economy.

"Growth slowed again in March as international uncertainty and a squeezes on margins continued," said Mr Eunan King, NCB senior economist.

"Expectations remain optimistic but employment continues to decline, if at a marginal rate, as spare capacity still appears to be available to reduce outstanding business," added Mr King.

"The consensus of opinion seemed to be that conflict in Iraq would be resolved swiftly and that many of the world's key economic markets would see recovery in 2003, providing support for Irish services firms."