The euro-zone services sector grew at its fastest pace in seven months in May, shrugging off a downturn in the manufacturing sector, but firms had to draw on backlogs of work to prop up activity, a survey showed yesterday.

The NTC Research Business Activity Index, based on a survey of some 2,000 companies in five euro-zone countries, edged up to 53.5 in May from 52.8 in April.

That was above a consensus forecast of 52.6 and clear of the 50 line that divides growth from contraction.

"This is very good news. The euro zone economy is not falling off a cliff and there is some resilience in the service sector," said Markus Heider at Deutsche Bank in London. "Growth is probably going to slow in the second quarter but maybe not as much as feared by some."

But growth was well below levels recorded a year ago and looks set to remain sluggish over coming months amid weak industrial output and consumer spending.

The modest upturn in the services sector last month contrasted with further contraction in euro- zone manufacturing as high oil prices, a slower global economy and the strong euro hurt exports.

"The services figures suggest the relative insulation of the services economy from some of the headwinds that have hit the performance of manufacturers since the start of the year," said NTC senior economist Luke Thompson.

Business activity growth picked up in France, Germany and Spain.

But the Italian service economy contracted at the fastest pace in the survey's seven-and-a- half year history and NTC said the survey underlined a need for structural changes.