* Private sector close to breaking back into growth
* Services sector business expectations grow for third month
BERLIN, Aug 5 (Reuters) - Germany's private sector contracted at its slowest pace in 11 months in July and was close to breaking through into growth in a sign Europe's largest economy is stabilising, a key survey showed on Wednesday.
Final figures for the Markit purchasing managers index (PMI) showed a headline composite measure of business activity rising five index points to 49.0 in July from 44.0 in June -- closing in on the 50 level that separates contraction from expansion.
Markit, which compiles the data, said this was the largest one-month gain since the series began in January 1998.
"German private sector activity declined only slightly in July and at the slowest pace in the current downturn," said Tim Moore, an economist at Markit.
"More encouraging still, the rate of decline in staffing levels was the weakest since January as demand showed some signs of stabilisation."
A sub-index tracking new business rose to 47.6 in July from 42.9. Markit said anecdotal evidence suggested that price discounting and the launch of new projects were factors contributing to the weaker reduction in new business.
The composite index covers both Germany's manufacturing and service sectors. The headline PMI for the service sector rose to 48.1 in July from 45.2, just below the flash estimate of 48.4.
The business expectations sub-index for services held well above the key 50 mark for the third month running, at 54.4.
Measures of investor and corporate sentiment have rallied in recent months, raising hopes the economy could see some growth soon and pull out of its worst recession since World War Two.
A final manufacturing PMI measure, released on Monday, rose to just below the 50 mark and hit a 10-month high in July, as orders and output grew for the first time since last summer.
Business morale rose for a fourth month running in July, hitting its highest level since October, while unemployment unexpectedly fell for the first time in nine months.
However, many sectors of the German economy -- which the government expects to contract by a record six percent this year -- are still suffering acutely from the crisis.
Retail sales fell by 1.8 percent month-on-month in June, data showed on Monday, missing expectations for a slight rise. (Reporting by Sarah Marsh; editing by Stephen Nisbet)