U.S. private employers eliminated fewer jobs last month, suggesting the job market may be on the mend, while the U.S. services sector grew at its fastest pace in more than two years.

Underscoring the view that the labor market may be recovering, planned layoffs by U.S. firms fell to the lowest level since 2006.

The news came ahead of Friday's key monthly non-farm payrolls report, which analysts said could be negatively affected by recent severe winter storms.

Private employers cut 20,000 jobs in February, compared with 60,000 job losses in January, the report by ADP, a payroll processor, showed on Wednesday. The February number was in line with the median estimate.

This is a positive sign that we are turning the corner toward job growth, said David Resler, chief economist at Nomura Securities International in New York.

Separately, the Institute for Supply Management said its services index rose more than expected in February. The reading was the highest since December 2007.

An employment component in the index also rose.

It's an encouraging number for the recovery, said Jim O'Sullivan, chief economist at MF Global in New York. The trend in employment is still improving.

Also in February, the number of planned layoffs at U.S. firms fell to its lowest level since July 2006, according to the report from global outplacement consultancy Challenger, Gray & Christmas Inc.

The report also said employers appeared to shift away from downsizing and may be poised to start adding workers.

Even though some sectors of the economy, including manufacturing, have been recovering from the worst U.S. economic downturn since the 1930s, the job market has remained weak, with unemployment near 10 percent.

Analysts expect the Friday report to show the economy lost 50,000 jobs last month, compared with 20,000 the month before, according to Reuters data.

U.S. stocks were higher, while the dollar was down against the euro and yen. U.S. Treasuries eased.

Analysts expect the report to show the economy lost 50,000 jobs last month, compared with 20,000 the month before, according to Reuters data.

(Reporting by Caroline Valetkevitch; additional reporting by Leah Schnurr, Steve Johnson, Rodrigo Campos and Richard Leong; editing by Jeffrey Benkoe)

Unemployment