By Jihoon Lee

SEOUL (Reuters) - South Korea's factory activity contracted again in April, but manufacturers' optimism climbed to the highest level in nearly two years as output and orders managed to post marginal growth, a private-sector survey showed on Thursday.

The purchasing managers index (PMI) for manufacturers in Asia's fourth-largest economy, compiled by S&P Global, fell to 49.4 in April, from 49.8 in March, on a seasonally adjusted basis.

It was the second month that the index had dipped below the 50-mark, which separates expansion from contraction, and the lowest reading since August 2023.

"While output and new orders returned to fractional growth territory, the headline PMI was weighed down by falling employment and stocks of purchases," said Usamah Bhatti, economist at S&P Global Market Intelligence.

"Falling employment, backlogs and inventories suggest that the sector still has some way to go before growth can be sustained."

The South Korean economy grew at the fastest pace in more than two years in the first quarter, data showed last week, beating all estimates on the back of a pick-up in domestic consumption and robust exports.

In the manufacturing survey, sub-indexes for output and new orders rose in April to 50.1 and 50.3, respectively, after falling below 50 in March for the first time in three months.

New export orders grew for the fourth straight month in April on strong demand from mainland China and the wider Asia-Pacific region, but the pace was a bit slower than the prior month, the survey showed.

On a negative note, employment fell in April after 11 months of increases, while inflation in both input and output prices were the sharpest since November.

Even so, manufacturers' optimism for the year ahead logged the highest reading since May 2022, as firms hoped for a sustained recovery in domestic and export orders, aided by new product launches and lower interest rates.