MADRID, July 3 (Reuters) - Spain's service sector continued to contract at a substantial rate in June amid a severe recession but the rate of decline eased more than expected and managers showed greater optimism, based on the Markit Purchasing index.
The indicator rose to 41.2 from 39.1 in May, which was only the second time since last May that the indicator has sat above 40, and well off November's record low of 28.2, according to the poll published on Friday.
A Reuters survey of 5 analysts had forecast a result of 40, with estimates ranging between 37.5 and 40.50. Service company managers were more optimistic than at any point since December 2007, on hopes of a recovery in the wider economy over the next 12 months.
However panellists reported that demand remained fragile, with five out of six indicators in the survey still below the 50 mark that divides growth and contraction.
The pace of decline in new business remained steep, though better than in May, with the renting and business activities and the financial sectors worst affected.
With the reduction in new work, companies completed outstanding business and backlogs fell at a substantial pace, Markit said.
Markit economist Andrew Harker said growth still seemed a long way off in a sector which continued to decline at a sharp pace.
"The latest PMI data suggest that while the contraction of GDP in the second quarter of the year will be less sharp than that seen in Q1, the Spanish economy remains deep in recession," he said.
With falling workloads, the rate of job cuts in the Spanish services sector continued to fall, though for the fourth month running that decline eased in speed.
Unemployment in Spain has almost doubled in the past year to 18 percent, the highest rate in the European Union and twice the EU average.
Output charges in every segment of the service sector fell in June as pressure from competitors and customers remained.
(Reporting by Ben Harding; Editing by Victoria Main)