New York City business activity expanded in December for the fifth consecutive month, though at a slower rate than November, while a gauge of business optimism was at its highest in more than three years, according to an industry report on Thursday.

The Institute for Supply Management-New York's seasonally adjusted index of current business conditions fell to 59.7 in December from 62.9 in November. However, it remained well above the 50 level that separates growth from contraction.

Future optimism grew, with ISM-New York's six-month outlook index rising to 80.2 from 74.4 in November, hitting its highest since August 2006.

There was also improvement in employment, the main trouble spot of the tentative economic recovery in the United States. The employment index rose to 56.9 in December from 54.8 in November.

The index measuring quantity of purchases, however, dipped to the brink of contraction, coming in at 50.0 versus November's two-year high of 55.9.

Cost pressures remained contained, the report said, with the prices paid index edging up to 34.7 from 34.6.

(Reporting by Burton Frierson, Editing by Chizu Nomiyama)