Growth in the U.S. service sector accelerated in August, according to an industry report Tuesday, showing that the huge chunk of the U.S. economy it accounts for was expanding prior to Hurricane Katrina (search).

The Institute for Supply Management (search) non-manufacturing index rose to 65.0 in August, its highest reading so far in 2005, from July's 60.5. The service sector reading rose for the second time in three months and beat analysts' forecast for a slight easing to 59.5.

A figure above 50 indicates growth.

The ISM service sector index was stronger than the ISM manufacturing index for August, which was released last Thursday and showed a lower-than-expected reading of 53.6.

The U.S. service sector (search) grew despite record oil prices and patchy retail sales this summer. However, the economic fallout from the damage Katrina did to the U.S. Gulf and the country's oil facilities last week could halt the sector's growth, analysts said.

The latest ISM service survey pointed to broad improvement, suggesting solid demand for U.S. services.

The August reading on new orders rose to 65.8 from July's 61.9. The measure on new export orders jumped 10 points from July to 63.5, its highest reading so far in 2005.

"This is stronger than expected, the highest since spring of last year. But it's less important since it doesn't show anything about the impact of Katrina and everyone's focused on Katrina right now," said John Shin, senior economist at Lehman Brothers in New York.

The price index on what service companies paid in August fell to 67.1 from July's 70.3, something of a surprise given the strong rise in energy costs.