BERLIN, July 1 (Reuters) - Germany's manufacturing sector shrank for the 11th month in a row in May, but the severity of the contraction was the least marked for any month since October, a survey showed on Wednesday. The Markit purchasing managers' index (PMI) of activity in the German manufacturing sector rose for the fifth month running to hit an eighth-month high of 40.9. A June flash estimate had given a reading of 40.5. In May the index stood at 39.6.
A reading of 50 in the monthly survey is the dividing line between growth and contraction.
"The moderation in job shedding and a slower drop in new orders were encouraging signs in June," said Tim Moore, an economist for Markit, which compiles the survey.
"Although this lifted the headline PMI, the month-on-month rise in the index was only marginal and the smallest recorded among the 'big four' euro zone nations," he added.
Europe's largest economy has been battered by a global slump in demand, and the government expects German gross domestic product (GDP) to shrink by six percent this year, which would easily be the biggest contraction since World War Two.
However, recent economic indicators suggest the German economy could be starting to pull out of the slump.
The Ifo economic research institute reported last week that its monthly gauge of business sentiment rose in June for the third straight month to reach a seven-month high.
A separate survey by the GfK market research group indicated consumer sentiment would hit a 1-year high going in July.
A breakdown of the manufacturing PMI showed an index for output was unchanged in June. A separate index of new orders rose to 43.2 from 42.6 in May.
REUTERS POLL: 40.5 (range 40.5-40.8, 21 forecasts) (Writing by Dave Graham; Editing by Andy Bruce)