JAKARTA (REUTERS) - Manufacturing output in Indonesia stagnated in July as input costs soared and export orders fell, HSBC Markit's purchasing managers' index survey showed on Thursday.

Overall manufacturing business conditions improved, but just a little, the survey concluded. Its July index for Indonesian manufacturing was 50.7, compared with the previous reading of 51.0.

A survey reading above 50.0 signals expansion and a reading below that means contraction in manufacturing activity.

"Manufacturing conditions in July improved only marginally, reflecting increasing external drag as new export orders contracted for a second straight month," said Su Sian Lim, economist at HSBC.

Companies reported they faced falling demand from Europe, a weak global economy and increased competition.

The survey said manufacturing output stagnated after four months of expansion. It said that incoming new work was unchanged from the previous month, and a sub-index for new orders fell to its lowest since May 2012.

Export orders contracted for the 2nd consecutive month, due to falling demand from European clients coupled with weak global economy and increased competition.

The survey said, rate of cost inflation accelerated to the fastest pace in the 28-month series history, as factory gate prices rose sharply driven by higher fuel and raw material costs.

On June 22, Indonesia raised fuel prices by an average 33 percent, to help it cut large budget and current account deficits hurting the rupiah.

On Tuesday, Indonesia's central bank governor said annual inflation in July was 8.18 percent, the fastest pace since February 2009.

Despite higher input costs putting pressure on firms'margins, purchasing activity in July increased for a sixth month to build inventories for future production. But some firms reported a reduction in purchases, the survey showed.

"It remains to be seen if manufacturing activity will pick up to more robust levels in the near-term, with inventories for future production being accumulated at a slight pace," said Lim.

Suppliers' delivery times lengthened in July due to transportation constraints, bad weather and raw materials shortages.