WASHINGTON • US service sector growth slowed to its most anaemic pace in three years last month, and job growth in the largest slice of the American economy was the weakest in half a decade, a survey of purchasing managers showed yesterday.

The Institute for Supply Management (ISM) said its index of non-manufacturing activity fell to 52.6 from 56.4 the month before.

The reading was below expectations of 55 from a Reuters poll of 67 economists, and was the lowest since August 2016.

A reading above 50 indicates expansion in the service sector, and a reading below 50 indicates contraction.

The business activity index fell to 55.2 from 61.5 the month before. That was below expectations of 59. The employment index fell to 50.4 from 53.1 a month earlier, hitting its lowest level since February 2014.

New orders dropped to 53.7 from 60.3. The prices paid index rose to 60 from 58.2.

The US economy's manufacturing sector contracted further in September, according to an earlier ISM report.

The latest data sent US stocks sliding in morning trading, while Treasuries rose for a sixth day as it confirmed concerns that the world's largest economy may be struggling.

The S&P 500 fell for a third day, the 10-year Treasury yield fell below 1.52 per cent and the US dollar dropped for a third day.

Interest rate futures traders also piled on bets that the US Federal Reserve would cut interest rates for the third time this year later this month.

Federal funds futures contract prices soared across the board after the ISM report.

The surge in futures prices lifted the implied probability of a 25 basis point rate cut from the Fed at its meeting on Oct 29 and 30, according to CME Group's FedWatch tool. The likelihood of a cut had risen to 92.5 per cent from 77 per cent on Wednesday.

The Fed, after raising rates nine times from 2015 to last December, has cut rates by a quarter percentage point at each of its last two meetings.

REUTERS, BLOOMBERG