ROME, May 4 (Reuters) - Italian service sector activity expanded in April at its slowest rate since January as new orders stagnated and expectations for business a year ahead slipped to a two-year low, a survey showed on Wednesday.
The Markit/ADACI Business Activity Index, covering service companies from hotels to banks, fell to 52.2 in April from 53.3 the month before, moving closer to the 50 mark that separates growth from contraction.
Activity was weaker than expected, with the median forecast in a Reuters survey of analysts pointing to a more modest fall in the index to 52.9. Forecasts spanned 49.5 to 53.7
"The latest data continued to show that operating conditions in the sector remained challenging," Markit said. "New order growth slowed to near-stagnation, while activity continued to be supported through backlog reduction."
The new orders sub-index fell to 50.1 from 51.0, reaching its lowest since December.
The trend mirrored Markit's sister poll for the manufacturing sector, published on Monday, which showed the headline PMI index at its lowest for four months, though at 55.5 it remained significantly higher than the services survey.
Cost pressures in the services sector also intensified, with input prices rising at the fastest rate since October 2008, while strong competitive pressures limited firms' ability to raise charges, Markit said.
Gross domestic product is expected to have accelerated only marginally in the first quarter after a 0.1 percent rise at the end of last year and the services PMI added to signs that activity may already have peaked.
"Faltering demand growth, combined with deteriorating sentiment, suggests that the trading environment in Q2 will be challenging," said Markit economist Andrew Self.
The fall in the PMIs is in line with other recent Italian leading indicators.
Business morale unexpectedly fell in April after touching its highest level since early 2008 in March, while consumer confidence dived to its lowest level for two years.
Silvio Berlusconi's beleaguered centre-right government last month cut its growth forecast for 2011 to 1.1 percent from 1.3 percent and next year's outlook to 1.3 percent from 2.0 percent. (Reporting by Gavin Jones; editing by Stephen Nisbet)