India's services sector picked up steam in June, with activity rebounding from a 20-month-low in May as new orders rose sharply and costs climbed at a slower pace, a survey showed on Tuesday.

The seasonally adjusted HSBC Markit Business Activity Index based on a survey of 400 firms, rose to 56.1 in June after hitting 55.0 in May, while expectations also soared.

The new business sub-index rose sharply in June due to improvements in general market conditions and strengthening demand. It has expanded in each month since May 2009.

"Services are showing signs of resilience, with business activity and new business improving over the previous month, despite policy tightening and high inflation," said Leif Eskesen, chief economist for India and ASEAN at HSBC.

It is the 26th straight month that the index has stayed above the 50 mark that divides growth from contraction.

The services sector contributes nearly 60 percent to the overall economy.

Participants in the survey expected business activity to flourish amidst optimism for improved growth in new business over the next year due to marketing initiatives. The sub-index reached its highest level last month since February.

The employment sub-index slowed marginally in June due to shortages in suitable labour, even as new jobs continued to be created to deal with the surge in business.

Input prices continued to rise but at a slower pace, while consumers also saw price rises ease.

Both the input prices and prices charged indexes fell to seven-month lows.

"While input costs and prices charged grew at a slightly slower pace, inflation pressures remain significant and persistent. The RBI, therefore, has little choice but to continue its tightening cycle," Eskesen added.

In June, the Reserve Bank of India (RBI) raised policy rates for the tenth time in just over a year, and signalled further rate hikes were unavoidable in the foreseeable future to combat stubbornly high inflation.

With the headline inflation still high at 9.06 percent despite the RBI's policy tightening, more rate increases are expected and several economists have scaled-back their growth forecasts for the fiscal year that ends in March 2012.

Data released last week showed Indian manufacturing PMI fell to a nine-month low in June, suggesting tight monetary policy was hurting activity even as prices remain high.

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