The pace of growth in the manufacturing sector slowed more than expected to its lowest level in more than 1-1/2 years, according to an industry report released on Wednesday.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 53.5 in May from 60.4 the month before. The reading missed economists' expectations for 57.7 and was the lowest level for the index since September 2009.

A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion.

U.S. stocks extended losses immediately following the report, while the dollar fell further against the yen. The 10-year Treasury yield slipped to its lowest level since early December.

It is hard to find a silver lining in this report, with all pertinent forward-looking sub-indices weaker. New orders, backlog of orders and production are confirmation we have hit a lull in manufacturing, said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, D.C.

New orders fell to 51.0 from 61.7 in April, the lowest since June 2009. The index for prices paid fell to 76.5 from 85.5, below expectations of 82.0.

Employment also slowed with the index dipping to 58.2 from 62.7. It was the lowest level since October 2010. The report echoed earlier regional reports that showed softer manufacturing growth last month.

(Reporting by Leah Schnurr; Editing by Padraic Cassidy)

Manufacturing