By Gavin Jones,
ROME, Aug 5 (Reuters) - Italian service sector activity contracted for the 20th month running in July but the rate of decline was the slowest for nine months, data showed on Wednesday.
The Markit/ADACI Purchasing Managers' Index, spanning companies from hotels to insurance brokers, rose to 44.5 from 42.3 in June, suggesting Italy's worst post-war recession has bottomed out and is gradually easing.
After a surprise fall in June, the PMI resumed the upward trend in place since February's all-time low of 37.9.
The index has languished below the 50 mark that separates growth from contraction since November 2007, but the latest data was above the median forecast of 43.0 in a Reuters poll of analysts.
The PMI showed new business shrinking at the slowest pace since October and while companies continued to cut jobs, the employment sub-index rose to 45.5 from 42.7, its first increase for 6 months.
"July's data provide further indication that the Italian service sector is slowly pulling out of a deep recession," said Andrew Self, economist at Markit Economics.
However, he pointed out that services activity is now falling at a faster pace than at manufacturing plants. Service providers "are more exposed to domestic consumption, which remains weak as household spending suffers in the face of rising unemployment," Self said.
The companion manufacturing PMI issued on Monday showed activity shrinking at its slowest rate for 11 months.
Business expectations among service providers fell for the first time in five months but remained close to June's 28-month high, while firms cut their prices for the 10th month running in response to weak demand, and at a faster rate than in June.
The Organisation for Economic Cooperation and Development forecasts that the euro zone's third largest economy would shrink by 5.5 percent this year, after last year's 1.0 percent contraction.
Italy has not posted two consecutive years of falling GDP in its post-war history. (Editing by Stephen Nisbet)