By Daniel Flynn
ROME, July 1 (Reuters) - Italy's manufacturing sector shrank at its slowest pace in nine months in June thanks to smaller declines in output and new business orders, but job cuts accelerated from the previous month, data showed on Wednesday.
The latest Markit/ADACI survey produced a headline Purchasing Managers' Index of 42.7 -- below the 50 threshold where growth begins but above March's record low of 34.6 and in line with a consensus forecast of 42.5 in a Reuters poll.
Production levels at Italian factories fell for the 15th straight month in June, albeit at the slowest pace since August 2008. The industrial sector accounts for around a quarter of gross domestic product in the euro zone's third largest economy.
New orders continued to decline, but at their slowest rate for 10 months. Nearly one-third of the survey panel recorded a deterioration in demand, "highlighting the strength of the latest contraction", Markit said.
New export orders declined at a sharper rate than new business as a whole during June, as the global crisis stifled foreign demand for Italian exports such as precision machinery, motor vehicles, chemicals and clothing.
Demand was particularly weak from eastern Europe, while U.S. orders were hurt by a stronger euro, the survey showed.
The figures added to a slew of data suggesting Italy's recession is slowing, but a convincing recovery is some way off.
Italy is mired in its worst recession since World War II, after the economy shrank by 1 percent in 2008. The OECD last week cut its forecast for Italy to a 5.5 percent contraction in 2009, and kept its outlook for a weak recovery in 2010.
Markit said one in five manufacturing companies reported a decline in their workforce in June, in many cases reporting temporary contracts had not been renewed and outgoing staff were not being replaced.
The employment sub-index slipped to 40.7, compared with 41.8 in May, but well off the low of 35.2 registered in March.
Post-production inventories fell for a third month in June, raising hopes companies would soon have to restock, triggering fresh orders. Manufacturing input costs fell for an eighth month as raw material prices eased and the euro appreciated.
Respondents also noted spare capacity at suppliers had increased their power to negotiate lower prices with vendors. The rate of decline, however, was the weakest in the current period of deflation as oil prices rebounded.
Data last week showed Italian business confidence rose for a third month in June, reaching its highest level since November, but the modest increase was below most analysts' expectations.
REUTERS POLL: 42.5 (range 41.5-43.0, 11 forecasts) (Editing by Andy Bruce)