Euro zone services growth edged up in February as demand improved, PMI shows

LONDON, March 4 (Reuters) - Euro zone services activity expanded at a slightly faster pace in February as demand picked up, though growth remained modest and firms barely added to headcount, a survey showed on Wednesday.

The HCOB euro zone services Purchasing Managers' Index, compiled by S&P Global, rose to 51.9 in February from 51.6 in January, and just above a preliminary estimate of 51.8.

PMI readings above 50.0 indicate growth in activity.

"The service sector did not perform particularly well in February, but momentum did increase slightly when compared with the previous month," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

New business growth accelerated modestly, continuing an expansion that began in August.

Service providers reduced their backlogs of work for a fourth straight month, though the pace of depletion slowed. Employment growth was modest and eased to a five-month low as business confidence softened slightly.

Cost pressures intensified sharply, with input price inflation matching January's 11-month high. The rate of increase was the steepest in nearly three years as companies cited higher wages, energy and transport costs.

"For the European Central Bank, these data are certainly one more reason why it is unlikely to plan any further interest rate cuts for the time being," de la Rubia added. The ECB will keep its deposit rate at 2.00% at least through the end of this year, a Reuters poll showed last month, extending its longest spell of steady borrowing costs since the negative-rate era.

Germany led growth among major euro zone economies with the strongest services momentum, while activity slowed in Italy and Spain. France's services sector continued to contract, though the decline moderated.

The services upturn helped drive the overall composite PMI to a three-month high of 51.9, extending the euro zone's growth phase to 14 months. (Reporting by Jonathan Cable; Editing by Hugh Lawson)