The service sector continues to thrive, showing its strongest growth last month since April 2006.

The Institute for Supply Management said in a report released on Thursday that its non-manufacturing index had performed better than expected last month, moving up to 60.7 in June from 59.7 in May and 56.0 in April. Economists had forecast the June index, which is chiefly made up of service-related companies, to come in at 57.5.

Treasury prices fell after the surprising show of strength. The yield on the benchmark 10-year note rose to 5.13 percent. Strong economic growth makes it less likely that the Federal Reserve will cut interest rates this year.

The ISM's report also highlighted a price index that retreated slightly to 65.5 from May's 66.4, a signal of ongoing inflationary pressures. Hiring for non-manufacturing jobs sped up, with the employment index inching up to 55.0 from 54.9 the prior month. The ISM's non-manufacturing new orders index was down slightly to 56.9, from 57.4 in May.

"The overall indication in June is continued economic growth in the non-manufacturing sector at a faster pace than in May," said Anthony Nieves, chair of the ISM's Non-Manufacturing Business Survey Committee.

Continued expansion in the service sector goes a long way towards counteracting the effects of a slump in the housing market. While news from the Department of Labor was not quite as upbeat, June's numbers were good enough to signal modest ongoing growth in employment as well. 

 The Department of Labor reported on Thursday that new applications for unemployment insurance rose by a seasonally adjusted 2,000 to 318,000 for the week ending June 30. That's slightly higher than the 315,000 that economists were expecting, but within a range that still suggests a robust job market.

 The four-week moving average of new claims moved to its highest since late April, up 1,750 last week to 318,500. The number of people continuing to collect unemployment benefits increased to 2.57 million for the week ending June 23, the highest since mid-April.

On Friday, the Labor Department releases the employment report for June. The unemployment rate is expected to hold steady at 4.5 percent, with employers adding an estimated 125,000 jobs.