The pace of business activity in the U.S. Midwest slowed modestly in October as new orders eased, though the employment gauge rose to its highest level in six months, a report showed on Monday.

The Institute for Supply Management-Chicago business barometer slipped to 58.4 from 60.4 the month before, falling short of expectations of 59.0, according to a Reuters poll. A reading above 50 indicates expansion in the regional economy.

The new orders gauge fell to 61.3 from 65.3, but the employment component of the index climbed to its highest level since April, rising to 62.3 from 60.6.

The order backlog component also rose to 51.2 from 45.4.

The dip in the headline sentiment number is reflected in the orders index ... but remember that two months ago (new orders) was at 56.9, so progress has been made, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note.

The report comes a day before the larger national manufacturing survey from the Institute for Supply Management. Economists said the survey did not change their expectations for Tuesday's ISM report, which is forecast to show the pace of growth in the sector picked up this month.

Manufacturing growth has weakened since the spring due to supply chain disruptions and faltering confidence in the economy, though activity in Chicago has held up better than some other regions that have contracted in recent months.

Separately, the Dallas Federal Reserve Bank's Texas manufacturing outlook survey showed business activity jumped to 2.3 this month from minus 14.4 -- its first positive reading in six months.

New orders rose to 8.3 from 3.6. Businesses' outlook also improved with the gauge of activity in the next six months climbing to 14.7 from minus 1.5.

Financial markets had little reaction to the data as risk-averse investors dumped stocks and pushed into U.S. Treasuries following the dollar's rise after Japan's intervention to weaken the yen.

(Reporting by Leah Schnurr; Editing by Jan Paschal)

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