French services sector shrinks at slower pace in January - PMI

PARIS (Reuters) - France's service sector shrank again in January, albeit at a slower pace than in December, a survey showed on Wednesday, adding to pressure on the government as it tries to engineer an economic recovery.

Data compiler Markit said its purchasing managers index for services rose in January to 48.9 from 47.8 in December, beating a preliminary reading of 48.6.

It was the highest reading since October and brought the index back towards the 50-point threshold dividing expansions in activity from contractions.

Markit economist Jack Kennedy said that although the rate of contraction eased and the flow of new orders improved, the service sector, which generates 56 percent of French economic output, remained weak.

"In the details, there was little to be particularly encouraged about as job shedding quickened while the divergence in input and output prices widened, implying pressure on company profit margins," he said.

"All in all, there was little sign of the sector shaking off its torpor," he added.

Markit's composite PMI index for France, covering both its service and manufacturing sectors, rose to 48.9 from 47.3, improving from an originally reported 48.5.

With much of the euro zone in recovery mode, France has stood out for the weakness of its PMI readings in recent months as businesses struggle to rebuild margins in the face of high taxes and limp demand at home.

Desperate to get near-record unemployment falling, President Francois Hollande announced a pro-business policy shift last month, offering to phase out charges companies pay to finance family benefits on condition that they commit to hiring and investment targets.

His government is counting on a rebound in job creation and investment to underpin a gradual recovery, estimating the euro zone's second-biggest economy will grow at least 0.9 percent this year.

Hollande's failure to turn around unemployment last year has driven his popularity ratings to record lows for a president in modern France, which bodes ill for his Socialists ahead of municipal elections in March.

(Reporting by Leigh Thomas; Editing by Hugh Lawson)