A closely-watched gauge of U.S. factory activity likely rose in July but stayed below the level showing expansion, suggesting the economy might start to emerge from recession in the second half of the year.

The median forecast for July for the Institute for Supply Management's index of U.S. manufacturing is 46.5, according to 25 economists polled by Reuters, up from June's 44.8, which was a 10-month high.

A reading below 50 suggests the sector is contracting.

With increased activity, manufacturers are expected to pay more for services and raw materials. The ISM's prices paid or inflation component likely edged up to 51.0 from 50.0.

The Institute for Supply Management will release its U.S. factory index at 10:00 a.m. EDT on Monday.

(Polling by Bangalore Polling Unit)

(Reporting by Richard Leong and Ellen Freilich; Editing by James Dalgleish)