July 3 (Bloomberg) -- An index of Australia’s services industry expanded for the first time in 15 months in June as government cash handouts and lower interest rates stoked consumer spending.

The performance of services index jumped 10.3 points to 50.2 from May, when it gained 0.1 point, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. The index was higher than 50 for the first time since March 2008, indicating the services sector is expanding.

Australia’s central bank cut its benchmark interest rate to the lowest in half a century in April and the government has distributed A$12 billion ($9.5 billion) to households this year to revive the economy. Retail sales climbed 1 percent in May from the previous month, twice as much as economists estimated, the statistics bureau said this week.

This is “a clear and positive sign that the sector is responding to improvements in consumer and home-buyer confidence due to lower interest rates and recent payments to taxpayers,” said Heather Ridout, chief executive of the Australian Industry Group. “A real test of the resilience of this nascent improvement will be how consumers respond to higher unemployment over coming months.”

Unemployment Rate

The jobless rate rose to 5.7 percent in May and the government forecasts it will peak at 8.5 percent within two years.

The Australian dollar traded at 79.26 U.S. cents at 9:32 a.m. in Sydney from 79.26 cents before the figures were released. The two-year government bond yield was unchanged after the report. It has fallen 12 basis points to 3.72 percent from yesterday. A basis point is 0.01 percentage point.

The services index, which is based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.

It measures sales, new orders, deliveries, inventories and employment for companies such as banks, real estate agents, insurers, restaurants, transport companies and retailers to compile the overall performance of services index.

To contact the reporter on this story: Victoria Batchelor in Sydney at vbatchelor@bloomberg.net.

Last Updated: July 2, 2009 19:43 EDT