[TOKYO] Japanese services sector activity expanded in July at a slightly slower pace than the previous month, a survey showed on Wednesday, suggesting only a moderate rebound in the economy after an expected contraction in the second quarter.

The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) fell to a seasonally adjusted 51.2 in July from 51.8 in June.

The index remained above the 50 threshold that separates expansion from contraction for the fourth consecutive month.

The index for new business rose to 53.2 from 52.6 to indicate the fastest growth since May 2013.

There is a growing chance that Japan's economy contracted in April-June as industrial output, exports and consumer spending weakened. Gross domestic product for the second quarter is due on Aug 17.

An expansion in services sector activity in July suggests that domestic demand is holding firm, which would bolster the argument that the economy will resume growing in July-September. But pockets of weakness in the economy mean that the pace of any rebound could be moderate.

Robust economic growth is essential for the Bank of Japan to meet its 2 per cent inflation target by its self-imposed deadline of sometime around the first half of fiscal 2016.

REUTERS