Activity in the Australian services sector has expanded for the first time in four months, a private survey shows.

The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI) rose 2.9 points to 51.9 points in January.

A reading above 50 indicates an increase in activity.

Australian Industry Group (Ai Group) director of pubic policy Peter Burn said the index suggested the Reserve Bank of Australia’s (RBA) decision to cut interest rates in November and December may have boosted consumer confidence.

“The return of key sectors directly exposed to household spending to positive territory provides a tentative sign that the easing of interest rates towards the end of 2011 may have lifted consumer confidence despite the dampening stream of news coming from Europe,” he said.

Commonwealth Bank senior economist John Peters said it was heartening to see the index back in positive territory after a weak December quarter.

He said that a third 25-basis-point cut in the official interest rate in February, which would take the cash rate to 4.0 per cent, would provide further support for the services sector in 2012.

“We expect the RBA to cut rates again soon, probably as early as next week’s February RBA Board meeting, to help further ‘fireproof’ the local economy from any potential negative fallout from Euroland’s chronic fiscal and debt woes,” he said.

“This should, in turn, give all sectors of the economy, including services, some further joy.”

Strong growth in the accommodation, cafes and restaurants, finance and insurance, and personal and recreational services sub-sectors, fuelled the expansion in the sector.

However, six of the nine sub-sectors contracted over the period with wholesale trade and communication services the worst performers.