The U.S. services sector expanded at the fastest pace in nearly five years in January, rising to a seasonally adjusted 59.4 from 57.1 in December, the Institute for Supply Management reported Thursday.

Readings above 50 signal expansion in the services gauge. Economists polled expected a 62.0 level.

The prices paid index, watched for signs of inflation, jumped to 72.1 from 69.5. Meanwhile, the employment index rose to 54.5 from 52.6.

"Non-manufacturing activity has expanded over the year and accelerated sharply over the past five months," said Steven Wood, chief economist at Insight Economics. "A cyclical upswing is currently in place."

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