* This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine
MOSCOW, Aug 3 (Reuters) - Russia's services sector expanded in July at its fastest pace in more than a year, a business survey showed on Wednesday, as strong domestic demand outweighed slumping export orders for Russia's increasingly isolated firms.
The S&P Global Purchasing Managers' Index (PMI) rose to 54.7 in July, its highest since June 2021 and up from 51.7 in June this year, pulling further clear of the 50 mark that denotes expansion.
"The rate of output growth was the fastest for just over a year, with activity supported by a sharper upturn in new business," S&P Global said in a statement.
"Stronger customer demand was confined to the domestic market as new export orders fell substantially in July. The ongoing impact of sanctions reportedly dampened foreign client demand."
Russia's economy has been buffeted by Western sanctions against Moscow over its actions in Ukraine, with international business drying up as foreign clients turn away.
Service providers passed higher costs on to clients and average cost burdens rose further in July.
Business confidence improved, with many citing hopes of improvements in the health of the wider economy and greater client demand, and although firms stepped up their hiring activity in July, backlogs of work rose sharply.
"The rate of growth in incomplete business was the sharpest since November 2003, as firms cited greater new business, challenges finalising contracts and input shortages as driving factors behind the increase," S&P Global said.
A sister survey this week showed Russia's manufacturing sector held steady in July as the sector continues to struggle with diving exports and logistical problems in the face of Western sanctions. (Reporting by Reuters; Editing by Hugh Lawson)