* This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine

MOSCOW, Aug 1 (Reuters) - Russia's manufacturing sector held steady in July, a business survey showed on Monday, as the sector continues to struggle with diving exports and logistical problems in the face of Western sanctions.

The S&P Global Purchasing Managers' Index (PMI) edged lower to 50.3 from 50.9 in June, but stayed above the 50 mark that separates expansion from contraction.

It was the third consecutive month of improving conditions for the sector which was hit hard by Western sanctions against Moscow over its actions in Ukraine and has seen international business dry up as foreign clients turn away from the Russian market.

But the survey also revealed the significant headwinds that Russian companies are up against.

"Operating conditions improved only fractionally in the Russian manufacturing sector," S&P Global said, pointing to falling output levels, raw materials shortages, salary competition among workers and weak demand as weighing on the industry.

New export orders fell again in July, S&P Global said - down for the sixth straight month. But firms were able to replace lost foreign business with domestic clients and the level of new orders rose at its fastest pace in more than three years, the survey showed.

Output prices fell at their sharpest rate since January 2009.

Sanctions have scuppered many of Russia's traditional supply chains and payment mechanisms, forcing the country's manufacturers to find alternatives to crucial Western parts, equipment and materials.

Separate figures from Russia's federal statistics service show output in many industries reliant on imported equipment or parts has crashed since February. Car production, for instance, was down 89% year-on-year in June.

Hopes were high though that a recovery could be on the cards, with businesses' reporting their strongest optimism in five months on "hopes of a stabilisation in economic conditions," S&P Global said. (Reporting by Reuters)