SEOUL (Reuters) - South Korea's factory activity contracted for a seventh straight month in January, a business survey showed on Wednesday, amid weak global demand and soaring COVID-19 infections in China.

Still, the pace of contraction was a bit milder than in the previous month, while manufacturers were also seen preparing for a brighter future ahead.

The S&P Global's seasonally adjusted purchasing managers' index (PMI) for South Korean manufacturers stood at 48.5 in January, slightly higher than 48.2 in December but remaining below the neutral 50-mark for the seventh month in a row.

The 50-mark separates expansion from contraction. Higher levels indicate faster rates of change from a month earlier.

New orders shrank for the seventh straight month in January, although the rate of decline was a little slower than a month earlier. The rate of contraction for new orders from overseas also eased, but it was still the second-fastest in their 11-month falling streak.

Lower demand from international clients reflected rising COVID-19 cases across mainland China as well as the impact of interest rate rises on the exchange rate, according to the survey.

Reflecting the fall in new orders, output fell by its sharpest rate in three months and stocks of finished goods rose for the first time in four months, sub-indexes also showed.

"The immediate outlook for the South Korean manufacturing sector appears challenging," said Usamah Bhatti, economist at S&P Global Market Intelligence.

"That said, firms remained confident that global economic conditions would improve and stimulate demand."

Employment increased for the first time in five months and by the fastest pace since March 2022, with panel members in the survey attributing it to hiring in advance of a return to growth in new orders.

Also providing support to businesses, the rising pace of input prices softened to the weakest level since December 2020, while worsening of suppliers' delivery times also eased significantly from the preceding month when they were hit by a truckers' strike.

Manufacturers' optimism about the future output over the coming year significantly improved in January to the highest level in four months, rebounding from a near 2-1/2-year low in December.

(Reporting by Jihoon Lee; Editing by Kim Coghill)