U.S. Economy: Service Industries Shrank Less Than Anticipated (Courtney Schlisserman)

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March 5 (Bloomberg) -- U.S. service industries contracted less than forecast last month, easing concern about a prolonged slowdown in the world's largest economy.

The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of gross domestic product, rose to 49.3 from a record-low 44.6 in January. The Tempe, Arizona-based ISM says 50 is the dividing line between expansion and contraction.

Stocks rallied and Treasury notes retreated after the figures, which followed a private report showing companies cut jobs in February for the first time in five years. Federal Reserve officials warned this week of the risk that economic growth will be even worse than their ``sluggish'' outlook.

``We are bouncing along the bottom of the economy's performance,'' David Resler, chief economist at Nomura Securities International Inc. in New York, said in a Bloomberg Television interview. ``We are close to recession-like conditions, but we are not completely in them yet.''

A separate report from the Labor Department today showed productivity grew faster than the economy in the fourth quarter as businesses reduced employees' hours to rein in costs. The Commerce Department said factory orders fell 2.5 percent in January, matching economists' projections.