BERLIN, Aug 3 (Reuters) - Germany's battered industrial sector contracted at its slowest pace in 10 months in July as orders and output grew for the first time since last summer, a survey showed on Monday.
The Markit purchasing managers' index (PMI) of activity in the German manufacturing sector rose for a sixth month running and by the biggest amount in the survey's history to hit 45.7, approaching the 50-level separating contraction from expansion.
A July flash estimate had given a reading of 45.2. In June the index stood at 40.9.
Output grew for the first time since July last year.
An index tracking new orders also rose past the 50.0 mark for the first time since June 2008. A separate index of new export orders jumped very close to growth, rising to a 13-month high of 49.8 from 42.3 in June.
The survey also showed a steep drop in inventories in response to weak underlying market conditions and ongoing adjustments to lower workloads.
"The German manufacturing sector stepped up a gear on the road to recovery," said Tim Moore, economist at data compiler Markit, adding that while manufacturing had likely passed its low point, a full recovery in the sector was not yet in sight.
Europe's largest economy has been battered by a global slump in demand that has contributed to the country's biggest post-war recession, with the government expecting gross domestic product (GDP) to shrink by some six percent this year.
After a record 3.8 percent contraction in the first quarter, signs of stabilisation in industry have been gathering. A government official said last month GDP may have been flat or even grown slightly in the second quarter.
Nevertheless, major sections of industry are still coping with a huge drop in demand from customers.
The VDMA industry association last week reported that German engineering orders fell by 46 percent on the year in June. The group said an end to the slump was not yet in sight and that it expected the sector to shed around 60,000 jobs this year.
The PMI survey pointed to a steep fall in employment levels, extending the current decline to 10 consecutive months, although the rate of job-shedding was the least marked since January.
Industrial conglomerate Siemens, a bellwether of the German economy, on Thursday cast doubt on its key performance targets and said it was bracing for a long period of slow growth in its most developed markets. (Reporting by Brian Rohan; editing by Stephen Nisbet)