Activity in the construction sector fell by its sharpest rate in more than four years last month, with the volume of new orders received at Irish construction firms plunging to a 52-month low.

More than a quarter of construction firms employed fewer people in September than in August as a weak housing market and greater caution from property developers contributed to the sixth successive monthly reduction in new building work.

Employee numbers at the firms declined at the steepest rate since June 2003, with 27 per cent of firms indicating that staffing levels had fallen, according to data in the monthly Ulster Bank Construction Purchasing Managers' Index (PMI).

The index stood at 41.6 in September, down from 43.8 in August. An index of 50 indicates zero growth, while any reading lower than that indicates a reduction in activity.

The use of sub-contractors by construction firms fell for the first time in almost four years, the index shows. The Irish construction sector's output reflected a bad month for PMIs across Europe and in the US, as the global credit crunch showed signs that it might dent eurozone economic activity as well as create turbulence in financial markets.

"September was a fairly poor month for sentiment in Europe and the US," said Ulster Bank chief economist Pat McArdle.

Increased marketing activities and a rise in the number of planning permissions granted helped confidence among construction companies recover further in September after hitting a low in July.

"While confidence has taken a hit, it is still positive and builders continue to expect that activity in a year's time will be higher," Mr McArdle said. But confidence levels are still well below those recorded earlier in the year, with fears about the outlook for the housing market dragging down overall sentiment in the construction sector.

For the second month in a row, all sectors of the construction industry contracted, with work on civil engineering projects falling at the most marked rate for four years, with the index giving a reading of 42.0 for the area. The commercial sector contracted only marginally during the month, showing a reading of 49.5.

Housing was again the hardest hit area of the construction sector, with the index showing a reading of just 29.5.