ROME, April 5 (Reuters) - Italian service sector activity accelerated slightly in March due to reduced backlogs, but new orders slowed, input prices surged and firms were less upbeat on business prospects, a survey showed on Tuesday.
The Markit/ADACI Business Activity Index, covering service companies from hotels to banks, edged up for the second month running to 53.3 in March from 53.1 the month before, remaining above the 50 mark that separates growth from contraction.
Activity was stronger than expected, with the median forecast in a Reuters survey of analysts pointing to a fall in the index to 51.8. Forecasts spanned 50.2 to 54.1.
However, the poll showed the rise was due entirely to falling backlogs, a negative sign for future activity, while price pressures increased, employment fell and most other components of the survey deteriorated.
"Weak demand is constraining firms' ability to pass on historically strong cost inflation to clients," said Markit economist Andrew Self. "Furthermore, sentiment in the sector, so key to investment plans, slumped to a 23-month low."
Input prices rose at their fastest rate since November 2008, while prices charged declined, the survey showed.
The business expectations sub-index fell to 69.7 from 72.1 to post its lowest reading since April 2009.
Italy's domestic-facing services sector is still lagging behind strength in manufacturing. Last week Markit's purchasing managers' index for manufacturing firms fell from an almost 11 year high but still posted a healthy reading of 56.2.
Recent data has been mixed, pointing to a fragile and patchy recovery in the euro zone's third largest economy.
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.
Business morale unexpectedly rose in March to its highest since February 2008, statistics bureau ISTAT reported last week, but the most recent official industrial output data showed a steep monthly fall of 1.5 percent in January.
Prime Minister Silvio Berlusconi's centre-right government expects the economy to grow by 1.3 percent in 2011, the same rate as in 2010. REUTERS POLL: Consensus 51.8 (range 50.2-54.1, 12 participants) (Reporting by Gavin Jones; Editing by Catherine Evans)