The surprise jump in the Institute for Supply Management's non-manufacturing index was cause for many encouragement, analysts said, as it suggested consumers were holding up better than thought in what seems to be a stalling US economy.
Yet it probably will not be enough to alleviate pressure on President Barack Obama to spur more job creation. Obama is a result of detail a new jobs plan in a national speech on Thursday.
A week ago, government data showed the economy added no new jobs in August, leaving the jobless rate at or above 9% for any fifth consecutive month.
"The unexpected rebound (in the ISM report) will assistance to ease recession fears following last week's news that payroll employment stagnated, inch said Paul Ashworth, chief US economist at Capital Economics in Toronto.
However he said the ISM reading of 53. 3 in August, while upward from July's 17-month low of 52. 7, "is consistent with only muted economic growth around 1. 5%. "
Economists polled by Reuters had expected a 51. 0 reading through. A reading above 50 indicates expansion.
While new orders rose, suggesting ongoing demand, the employment index slipped to 51. 6, its lowest since Sept 2010, underscoring the difficulties facing the roughly 14 million Americans who are unemployed.
Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, Ny, said the ISM employment reading is consistent with monthly payrolls growth around 50, 000, well below what is needed to dent the jobless price.
He also warned that the report is "little more than a lagging indicator from the rate of growth of core retail sales, which have held up well recently. "
The services sector accounts for more than two-thirds of the ALL OF US economy, economists estimate, and is an important source of growth even for many big manufacturers such as Lockheed Martin Corp, the world's largest defense service provider.
"There are signs that the economy continues to be under stress, " Lockheed Martin Leader Robert Stevens said on Tuesday.
Speaking at the Reuters Aerospace and Protection Summit in Washington, Stevens cited high US unemployment and weak
economic development. But he added, "It's not clear to me whether that conveys a feeling of a double-dip recession. "
The poor US jobs outlook, along having a prolonged debt crisis in Europe, helped spark a stock market sell-off last month which has battered business and consumer confidence.
That has increased pressure on the Federal government, particularly with the 2012 election just over a year off.
Political clashes within the US budget and debt burden, which led Standard & Poor's to strip the nation of its AAA credit rating, also unnerved investors and consumers alike.
Stocks pared some losses Tuesday following the better-than-expected report but were still down more than 1% on rising concerns concerning the euro zone debt crisis.
Buying of safe-haven US government debt only faded slightly following the report.
EUROPE, ASIA STRUGGLE, FED IN FOCUS
Firmer growth in the ALL OF US service sector was at odds with readings from beyond US borders. Data on Monday showed service sector growth slowed sharply within the Eurozone, Britain and China, boosting fears of global recession.
If the Usa, the world's largest economy, can keep out of recession, that outlook might improve, analysts said.
Wall Street increasingly expects the Federal Reserve, which already warned it might hold interest rates near zero until 2013, to pour more money to the financial system to boost growth.
"At the margin, (Tuesday's ISM data is) an argument against any further accommodation at this time, but this doesn't necessarily countervail the whole bulk of the other information, " said Bill Jordan, economist at Ried Thunberg, a unit of ICAP.
Fed Chairman Ben Bernanke is scheduled to speak in Minnesota on Thursday concerning the US economic outlook. The Fed's policy-setting committee will meet September 20-21.