(Reuters) -Russia's manufacturing sector contracted at its sharpest rate in more than three years in June as output, new orders and employment all slumped, a business survey showed on Tuesday.

The S&P Global Purchasing Managers' Index (PMI) for Russia's manufacturing sector fell to 47.5 last month from 50.2 in May, sliding back below the 50 mark denoting contraction after just one month of growth.

It was the steepest monthly contraction since March 2022, the month after Moscow invaded Ukraine and the West imposed unprecedented sanctions on it.

Output decreased for the fourth month running and new orders slumped into contraction territory from growth in May.

"The fall in new work was attributed by firms to reduced purchasing power at customers and weak client demand," S&P Global said in a statement.

Russia's significant spending on military equipment and weapons since invading Ukraine in February 2022 has buoyed a manufacturing sector that otherwise may have suffered as some countries shunned Moscow. Industrial output growth has started slowing in the past year, federal data shows.

The contraction in new export orders quickened in June to its fastest pace since November 2022.

"Unfavourable exchange rates reportedly weighed on competitiveness in key export markets, according to panellists," S&P Global said.

Employment levels fell for the second time in three months, as manufacturers entered retrenchment mode. The pace of job shedding was the sharpest since April 2022, reflecting reduced production requirements.

Despite subdued demand conditions, business confidence remained historically upbeat, buoyed by hopes of improved demand and planned product releases, the survey showed.

However, optimism dropped to the lowest level since October 2022 amid concerns over global economic uncertainty.

(Reporting by Alexander Marrow; Editing by Hugh Lawson)