TOKYO, May 23 Reuters Japan39;s factory activity crept into expansion for the first time in a year in May, a business survey showed on Thursday, as manufacturing gathered pace after months of weakness.

The au Jibun Bank flash Japan manufacturing purchasing managers39; index PMI climbed to 50.5 in May from 49.6 in April, breaching the 50.0 threshold separating growth from contraction last seen in May last year.

The expansion in business activity remained servicesled, but the nearstabilisation of manufacturing output offers hope of growth broadening out later in the year, said Jingyi Pan, economics associate director at SP Global Market Intelligence, which compiled the survey.

Both output and new orders, the two key subindexes contributing to the headline figure, contracted at a slower pace, while stocks of purchases rose at the fastest pace in 10 months.

Manufacturers39; optimism, though, dipped and inflationary pressures pushed up input costs and output prices.

Japan39;s businesstobusiness wholesale inflation held steady at 0.9 in April as the yen39;s declines pushed up import costs, government data showed last week, with analysts expecting it to accelerate in coming months.

Meanwhile, the service sector kept expanding in May but at a slower pace as new business growth slowed down.

The au Jibun Bank flash services PMI dropped to 53.6 in May from April39;s final reading at 54.3.

Still, strong business confidence prodded employment levels to increase at a quicker…