TOKYO, Aug 5 Reuters Japan39;s servicesector activity returned to growth in July thanks to solid domestic demand, a survey showed on Monday, but slow overseas orders and unabated cost pressures continue to squeeze businesses.

The final au Jibun Bank Service purchasing managers39; index PMI rose to 53.7 last month, from 49.4 in June, which was the first contractionary reading in 21months.

While the index was back above the 50 line that separates expansion from contraction, it edged down from the flash reading of 53.9.

The nearterm outlook for the service sector appears robust, as the level of outstanding business a bellwether for upcoming work returned to growth territory, said Usamah Bhatti, economist at index publisher SP Global Market Intelligence.

Respondents39; 12month future outlook also stayed strong, Bhatti added.

However, service companies39; new export business fell into contraction for the first time in seven months, suggesting tepid global economic growth.

Lukewarm overseas demand has hit Japan39;s manufacturing sector harder, earlier surveys have indicated, coupled with higher costs of raw materials, energy and labour.

But nonmanufacturers have also been hit by rising costs, according to the July service PMI data, which showed input prices rose for the 44th straight month while the prices companies charged their customers grew faster than in June.

A recent Bank of Japan BOJ data also showed that corporate service prices rose at the fastest speed in…