Japan's service sector expands for third month, but confidence dips, PMI shows

TOKYO (Reuters) - Japan's service sector activity expanded for the third straight month in September, but the pace slowed slightly and confidence dipped in a sign of the broader economic strains amid weakness in manufacturing, a private survey showed on Thursday.

The final au Jibun Bank Service purchasing managers' index (PMI) declined to 53.1 in September from 53.7 in August, according to index publisher S&P Global Intelligence.

It was below the flash reading of 53.9 but above the 50.0 threshold separating expansion from contraction, with the average of the three months to September indicating sustained growth.

The services industry has been a bright spot for the world's fourth largest economy, anchoring growth and offsetting some drag from a struggling manufacturing sector.

For September, service companies' new business growth was in expansion territory for the third consecutive month underpinned by solid demand.

Business confidence also remained relatively upbeat though it sank to a 20-month low, mainly as a weak manufacturing sector weighed on aggregate growth in new business.

"How the (service) sector responds in the coming month given downside risks including a stagnating economy will be key to the performance of the wider private sector," said Usamah Bhatti, economist at S&P Global Market Intelligence.

Japan's economy expanded an by annualised 2.9% rate in the second quarter as steady wage hikes underpinned consumer spending. Capital expenditure continues to grow, though soft demand in China and slowing U.S. growth indicate a solid recovery for the export-reliant country could be some way off.

Export sales grew for two straight months but the pace slowed from August, with key markets including mainland China reporting weak demand, the survey showed.

Moreover, while the rate of input inflation eased to a six-month low, it stayed above the survey's long-run average as a weak yen raised pressure on wages as well as food and imported raw material prices. Service companies also kept passing increased costs associated with wages and raw materials to customers.

The composite PMI, which combines the manufacturing and service activities, dipped to 52.0 in September from 52.9 in the previous month.

(Reporting by Satoshi Sugiyama; Editing by Shri Navaratnam)