Ireland's services sector is still contracting - but not as fast as in previous months, according to the latest NCB purchasing managers' services index (PMI).

November's business activity index recorded 47.0, signalling contraction in overall service sector activity for the fourth consecutive month. In broad terms, a reading of above 50 on the index translates growth, while readings below 50 indicate contraction. However, the Irish figure was sharply up on the 44.8 recorded in October, and even September's 46.2.

The Republic's index reflects that of business in the euro zone's services sector, which also shrank in November for the third month running, but at a slightly slower pace. The Reuters euro-zone services business activity index rose slightly to 46.9 from the series low of 46.7 in October. The survey of more than 2,000 companies in Germany, France, Italy, Spain and Ireland showed they were slightly less pessimistic about their business prospects in 12 months' time than they were in October. However, although contraction of overall activity in Ireland was sustained in November, the latest data suggested a significant easing in that rate of deterioration, NCB said.

Firms surveyed generally reported that the more rapid decline in business conditions seen in the previous two months had largely been a result of over-reaction in the economy to the events of September 11th.

The survey of 535 firms covers all private sector services in Ireland, excluding retail and wholesale.

"The services PMI showed a significant rebound in all activity readings in November after two months of sharp decline. Most heartening was an across-the-board recovery in business expectations for the future," said Mr Dermot O'Brien, chief economist at NCB.

Although firms continued to report the deterioration of demand for their services in November, the rate of contraction of incoming new business eased sharply during the month. A number of firms reported that data from the previous month reflected a strongly negative impact on new business post-September 11th.

As demand for services continued to fall away in November, firms reported being able to catch up on outstanding contracts. However, backlogs of work were cut at a slower rate than in the previous month, mirroring the trend seen for incoming new business, NCB said.

Service sector staffing levels in Ireland fell for the second consecutive month in November, in line with the euro-zone services sector. The sector - responsible for most of the euro-zone's employment growth until September - is now shedding jobs at the fastest pace since the survey began in July 1998.

The rate of contraction in Ireland picked up as firms reported that, after four months of falling activity, they could not justify maintaining employment at current levels. "Firms reported efforts to maximise efficiency in light of worsening economic conditions," according to NCB.

Average input prices continued to rise in November, fuelled largely by higher wages and salaries. But the marked fall in oil prices in recent months acted to subdue the rate of inflation in November. After falling marginally in October, the latest data on output prices signalled a slight rise in average charges levied by service sector firms. But the rate of inflation was minimal, NCB said, reflecting the limited scope available to firms to raise charges, given the current competitive environment.

Almost one in three companies backed by European venture capital company 3i said productivity had improved by more than 20 per cent over the past five years, while only 3 per cent said it had fallen over the same period.

However, private companies have continued to lose confidence in the business, political and economic climates in the five main countries in Europe - Germany, France, Britain, Italy and Spain - according to the latest quarterly 3i barometer indices.