* Pace of contraction eases, but fourth month below 50
* Markit says points to possible economic contraction in Q4
* Businesses still slashing costs and jobs
MADRID, Dec 3 (Reuters) - Fragile domestic demand saw Spain's dominant services sector contract for the fourth month in a row in November, raising fears the economy could contract in the last quarter of the year, a key survey showed.
Markit's purchasing managers' index of services companies rose to 48.3 in November from 46.5 in October, showing the pace of contraction slowed in a sector that represents over 70 percent of the economy.
The index was pulled higher by an easing in a slowdown of the main sub-indices covering employment and new business. But the overall index remained below the 50 point which divides growth from contraction for the fourth successive month, with resturants and hotels worst hit.
"Spanish service providers continue to struggle against a chronic weakness in domestic demand," said Andrew Harker, economist at data provider Markit.
The Spanish economy crawled out of an 18-month-long recession in the first quarter, and stagnated in the third quarter of the year. Markit warned worse could be to come.
"PMI data so far for the final quarter of the year points to a further weakening in economic conditions since Q3, suggesting that GDP may decline over Q4," said Harker.
Spain is striving to assure markets that it will not be forced to take a rescue package like that of Ireland and before it Greece and that it is in control of cutting its public deficit even in a slow-moving economy. Its deficit target objectives over the next three years hinge on an outlook for strong economic improvement. Spain aims to cut its public deficit from 11.1 percent in 2009 to 6 percent in 2011.
But the decline in the services sector did at least ease in November. The new business index rose to 47.2 in November from 44.8 in October, while the employment index rose to its highest level since March, even if still showing the sector has shed jobs for almost 3 years.
Official data on Thursday showed the jobless rate rose for the fourth month in a row in November with most lay-offs seen in the highly seasonal service sector. The country has the highest unemployment rate in the euro zone just shy of 20 percent in the third quarter.
More positive news in the survey came from the business expectation index for work in the year-ahead, which jumped higher.
But businesses were again hit by higher costs in the last month as fuel costs rose. While the pace of cost rises slowed in the past month, businesses were still unable to pass on increases as they sought to drum up demand in a weak market. The survey also showed that profitability fell again in the sector, and has now fallen for just over three years. (Reporting by Nigel Davies; editing by Stephen Nisbet)