A three-month slump in France's services sector came to an end in July as business activity stabilised, helped by a slower rate of decline in new business and work backlogs, a survey showed.

But more staff cuts as part of cost-savings plans pushed employment lower, with the contraction rate the steepest since March 2010.

The Markit/CDAF final purchasing manufacturers' index (PMI) for the services sector, published today, jumped to 50.0 in July from 47.9 in June, just shy of a preliminary reading of 50.2.

A level of 50 indicates no change in activity, putting an end to three straight months of contraction when the indicator was below that threshold.

"The French service sector showed resilience in July, ending a period of falling activity throughout the second quarter," said Markit economist Jack Kennedy.

"However, the overall economy remains fragile at the start of Q3, as PMI data showed that the improvement in services was offset by a deepening manufacturing downturn," he added.

The composite indicator, which combines both business services and manufacturing, rose to 47.9 from 47.3 in June. The reading was just below a preliminary reading of 48.0.

France's new Socialist government has inherited a faltering economy and has put jobs creation at the top of its priorities. It is struggling to hold back waves of impending job cuts - such as 8,000 jobs on the chopping block at automaker Peugeot - that unions say could threaten as many as 75,000 posts. Despite a slower pace of contraction in new business and backlogs, business confidence eroded for the fourth month in a row to a nearly three-and-a-half year low of 51.5, indicating that companies expect only a moderate rise in activity over the next year. Panelists cited uncertainty among clients, who have postponed spending decisions due to the gloomy economy. ( C) Reuters