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German services sector stumbles as soaring inflation hits confidence - PMI

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FILE PHOTO: General view shows restaurant of hotel castle Elmau in Kruen

BERLIN (Reuters) - Germany's services sector contracted for a second month running in August as domestic demand came under pressure from soaring inflation and faltering confidence, a survey showed on Monday.

S&P Global's final services Purchasing Managers' Index (PMI) for August fell to 47.7 from 49.7 the previous month. That was also lower than the late-August flash estimate of 48.2.

Facing persistently strong cost pressures from higher energy bills and rising wages, services firms continued to take on new staff to address capacity constraints, but employment growth lost momentum and was at its weakest in a year and a half.

"After providing important support to the economy during the opening half of the year, business activity across Germany's service sector has started to falter during the third quarter as domestic demand comes under pressure from sky-high inflation and wavering confidence," said Phil Smith, Economic Associate Director at S&P Global.

He added, however, that slowdowns in the rates of increase in both input costs and output prices suggested that underlying price pressures may have peaked, partly due to falling demand.

A recent renewed surge in wholesale gas prices nonetheless brought "fresh upside risks" to inflation, Smith said.

The final composite PMI, which tracks both the manufacturing and services sectors that together account for more than two-thirds of the German economy, fell in August to a final reading of 46.9 from 48.1 the month before.

(Writing by Paul Carrel; Editing by Hugh Lawson)