By Jihoon Lee

SEOUL A protracted slump in South Korea's factory activity eased in July as export orders rose for the first time in nearly 1-1/2 years, a private business survey showed on Tuesday, raising hopes for a more durable economic recovery.

The purchasing managers index (PMI) for South Korean manufacturers, compiled by S&P Global, rose to 49.4 in July from 47.8 in June on a seasonally adjusted basis.

The sub-50 reading suggested activity continued to contract for the 13th straight month, albeit at a much slower rate.

A sub-index for new export orders rose to 50.2, after 16 months below 50, with a rise in demand from key markets across the Asia-Pacific region and Europe, particularly for automotive goods and semiconductors, according to the survey.

That brought the decline in overall orders to the narrowest in 12 months, with the sub-index sharply up to 48.7 from 45.0, while output rose to 47.2 from 46.5.

"Concurrently, firms took this as a signal to prepare for a gradual improvement in demand by taking on additional staff and raising purchasing activity in July," said economist Usamah Bhatti at S&P Global Market Intelligence.

Employment increased by the more in 17 months and the quantity of purchases rose for the first time in 12 months, while stocks of finished goods posted the sharpest drop in 18 months, corresponding sub-indexes showed.

Business conditions improved on the inflation front as well, with input prices falling for the first time since June 2020, accompanied by the steepest decline in output prices since August 2020.

A measure of manufacturers' optimism for future output jumped to 56.2 in July, from a six-month low of 52.4 in June.

South Korea's economy sped up faster than expected in the second quarter, flattered by headline improvements in trade, but weaker consumer and business spending added to the case for the central bank to loosen its restrictive monetary policy.

(Reporting by Jihoon Lee)