The services sector activity expanded sharply in December to return to the near eight-year high recorded in June, suggesting the economy finished last year with strong momentum.

Investec's Purchasing Managers' Index of activity in the services sector, which covers businesses from banks to hotels, rose to 62.6 from 61.6 in November to match the June level which was the highest since February 2007.

The index has stayed above 60 for almost a year and has not fallen below the 50-point line denoting growth since July 2012.

The sub-index measuring employment rose 61.8 from 60.7, the highest level since the series began in May 2000.

"Panellists mainly attributed the latest rise in service sector output to increased new business, driven by better economic conditions and improved confidence," Investec Ireland's chief economist Philip O'Sullivan said.

"All four components of the services sector - business services, financial services, technology, media and telecoms and transport & Leisure - simultaneously recorded growth in employment for a 13th successive month in December," he added.

The Government has forecast that the economy grew by almost 5% in 2014 after a surge in gross domestic product in the first six months of the year, a rate which would probably make it the best-performing economy in the European Union.