Companies reported cautious growth in business activity and orders but respondents did not cite the looming fiscal cliff as a problem, unlike those in manufacturing which blamed the cliff battle in Washington for a slowdown last month.

The ISM's index for the services sector rose to 54.7, from 54.2 in October, roughly in the range it has held for a year.

Surveyed companies reported a strong rise in business activity and a moderate increase in new orders, but hiring in the sector was nearly flat.

"Sales continue to lag, but there are signs of improvement," said one executive in the retail trade sector.

"Cautiously optimistic is the best way to describe customer sentiment. Revenue continues to remain well below last year, but seems to have finally reached a point of stability," said a respondent in the arts, entertainment and recreation field.

On Monday the ISM reported its monthly manufacturing index fell to 49.5, in contraction territory, from a positive 51.7 in October, snapping two straight monthly gains.

Manufacturers blamed the slow global economy and uncertainty from the entrenched political battle in Washington over looming severe tax hikes and spending cuts known as the fiscal cliff and slated to hit the economy from January 1.