NEW YORK - US CONSTRUCTION firms, hotels and retailers saw business shrink in October as slower spending and declining employment sent the service sector into contraction, another gloomy sign for the economy.

The Institute for Supply Management, a trade group of purchasing executives, said on Wednesday its service sector index suffered a sharper-than-expected drop to 44.4 in October from 50.2 in September.

Wall Street economists surveyed by Thomson Reuters expected a reading of 47.5. A reading below 50 signals contraction.

'In short, horrible, but only to be expected in the wake of the equity plunge and the subsequent collapse in confidence', said Mr Ian Shepherdson, chief economist at High Frequency Economics, a private research firm.

Asked in a one-time question whether the financial crisis was affecting business, 82.2 per cent of respondents said they had reduced spending, hiring or both, according to the ISM report.

New orders, deliveries, backlogs and inventories all fell.

The one glimmer of good news could also be further evidence of a recession: After a summer of price hikes, the index of prices paid showed its largest one-month decline since the index was first reported in 1997.

One of the few industries reporting growth was utilities, but that business is not immune to the downturn. Duke Energy, one of the largest US electric power companies, said on Wednesday its third-quarter profit fell 65 per cent.

It blamed the worsening economy, as well as record Midwest storm outages, for the decline.

On the retail front, intimate apparel maker Maidenform Brands on Wednesday lowered its 2008 profit and sales outlook to reflect the bankruptcies of department store chains Mervyns and Boscov's Department Store.

A manufacturing report issued Monday by ISM showed the worst reading since September 1982, when the country was near the end of a 16-month recession. -- AP