The slumping New York state factory sector shrank at a more severe rate in June than during the previous month, the New York Federal Reserve said on Monday, confounding expectations of a slight improvement.

The New York Fed's Empire State general business conditions index fell to minus 9.41 in June from minus 4.55 in May.

Economists polled by Reuters had expected a June reading of minus 4.5, and the surprisingly weak result challenges analysts who believe the U.S. economy is poised for a rebound.

We've got a little bit of cold water thrown on the manufacturing sector's recovery after seeing some persistent improvements. We're now back down a little bit, said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto, Canada.

On Wall Street, U.S. stock futures added to their losses after the unexpectedly weak number. U.S. government bonds, which generally benefit more from signs of economic weakness, maintained the day's earlier gains.

The index was launched in July 2001.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

The fall in the main index came as shipments dropped into negative territory, coming in at minus 4.84 in June from positive 1.29 in May.

New orders remained negative at minus 8.15 but not quite as bad as May's 9.01.

Inventories fell further, hitting 25.29 versus May's 21.59, continuing a liquidation of stockpiles that many economists say is necessary before the economy can recover.

Inflationary pressures also remained negative but much less so than in May, with the prices paid gauge coming in at minus 5.75 compared with May's minus 11.36.

Similarly, the prices received measure came in at minus 12.64 compared with minus 27.27.

The employment index came in at minus 21.84 versus minus 23.86. Though decidedly negative, this was the highest since October 2008.

Looking ahead, the six-month business conditions rose to its highest since July 2007.

(Additional Reporting by Mary Angela Rowe)

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