BEIJING (Reuters) - Activity in China's services industry rose to a four-month high in March, a private survey showed on Thursday, even as persistent weakness in manufacturing has reinforced fears of a sharper-than-expected economic slowdown.
The Markit/HSBC Services Purchasing Managers' Index (PMI) increased to 51.9 in March from February's 51.0, buoyed by strong employment, a second successive rise taking it further above the 50 level that separates expansion from contraction.
Earlier, the official services PMI showed a slight dip in the sector's growth in March, to 54.5 from February's 55.0, but activity remained well in expansion territor.
"The HSBC China Services PMI suggests a modest improvement of business activities in March, with employment expanding at a faster pace," HSBC chief China economist Hongbin Qu said in a statement accompanying the release.
"However, combined with the weaker manufacturing PMI reading, the underlying strength of the economy is softening, which should ultimately weigh on the labour market."
The pick-up in services contrasts with a run of weakening economic indicators this year. On Tuesday, two surveys showed manufacturing struggled in March, with activity at smaller, private firms contracting for the third month in a row.
On Wednesday, China's cabinet said it would accelerate construction of rail projects and cut taxes for small firms, in what appear to be the first steps it has taken this year to steady the economy.
Premier Li Keqiang had said last week the necessary policies were in place and the government would push ahead with infrastructure investment. Economists at top government think-tanks believe some of this spending is already underway.
The Markit/HSBC PMI found that service-sector firms remained very optimistic in March, generally expecting business activity to be higher than current levels in one year.
Services made up 46.1 percent of gross domestic product in 2013, having overtaken manufacturing as China's biggest employer in 2011. It has weathered the global slowdown much better than the factory sector.
(Reporting By Adam Rose; Editing by John Mair)