UPDATE 2-US service sector growth slips in Oct, hiring picks up

* Services sector eases to 54.2 in Oct from 55.1

* Employment index highest since March

NEW YORK, Nov 5 (Reuters) - The pace of growth in the U.S. services sector slowed modestly in October, though a measure of employment improved to its highest in seven months, underscoring expectations the economic recovery will remain modest.

The Institute for Supply Management said its services index eased to 54.2 last month from 55.1 in September, shy of economists' forecasts for 54.5, according to a Reuters survey.

A reading above 50 indicates expansion in the sector.

The forward-looking new orders gauge fell to 54.8 from 57.7, but the measure of employment rose to its highest since March at 54.9 from 51.1.

The vast services sector has fared better than its manufacturing counterpart, which contracted during the summer. Still, this was the first time since June that the rate of growth in services firms has cooled.

While manufacturing has begun to grow again, the services sector is expected to remain stronger as it feels less of an impact from weaker exports.

Taken together, the two reports point to an economy that is growing at around a 2 percent pace, analysts said, maintaining the third quarter's rate of growth and reinforcing the view that the United States is holding on to a modest recovery.

``Moderate growth in the U.S. economy continues,'' said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

New export orders contracted to 47.5 from 50.5 against the backdrop of slower global growth and the euro zone's ongoing debt crisis.

Financial markets saw little reaction immediately following the data. Wall Street was little changed in late morning trading as investors were wary of taking aggressive bets the day ahead of the U.S. presidential election.

Services companies in other parts of the world also saw slower growth in October, separate reports showed on Monday. The pace of activity in China slipped, while Britain's sector grew at its slowest in almost two years.