TORONTO, July 4 (Reuters) - Canada's services economy

contracted at a steeper pace in June as uncertainty generated by

U.S. trade policy depressed activity and cost pressures

increased, S&P Global's Canada services PMI data showed on

Friday.

The headline Business Activity Index fell to 44.3 last month

from 45.6 in May, marking the seventh straight month the index

has been below the 50 threshold. A sub-50 reading indicates

contraction in the sector.

"Canada's services economy remained deep inside contraction

territory during June, as uncertainty caused in the main by US

trade policies continued to weigh heavily on activity and new

business volumes," Paul Smith, economics director at S&P Global

Market Intelligence, said in a statement.

"International demand was again especially hard hit, and the

outlook remains subdued given widespread uneasiness and

challenges in forecasting business trends in the months ahead."

Canada sends about 75% of its exports to the United States,

including autos, steel and aluminum, which have been hit by

hefty U.S. tariffs.

Prime Minister Mark Carney and U.S. President Donald Trump have

agreed to reach some form of a trade deal by July 21.

Still, confidence in the outlook remained subdued. The

Future Activity Index was at 54.9, down from 58.9 in May and its

lowest level since March.

"Positively, firms added to their staffing levels in June

although, reflective of the uncertain outlook and rising labour

expenses, recruitment tended to be for part-time workers," Smith

said.

"On the price front, operating costs rose to the greatest

degree since October 2022 which served to push up selling prices

at a faster pace despite the challenging business environment."

The Input Prices Index rose to 62.7 from 62.1 in May, while

the prices charged measure was at 55.1, up from 54.6 and its

highest level since May 2024.

The S&P Global Canada Composite PMI Output Index fell to

44.0 in June from 45.5 in May, extending the current downturn to

seven months.

Data on Wednesday showed that the downturn in manufacturing

activity deepened last month. The S&P Global Canada

Manufacturing PMI edged down to 45.6 from 46.1 in May.