TOKYO (Reuters) - Japanese manufacturers turned slightly less confident about business conditions in August and the service sector's mood eased, the monthly Reuters Tankan survey found on Wednesday, as lacklustre demand from China weighed on corporate sentiment.

The poll comes after the Bank of Japan (BOJ) last month raised interest rates to levels unseen in 15 years and released a detailed plan to slow its massive bond buying.

The sentiment index for manufacturers slipped to plus 10 in August, down one point from July, according to the Reuters Tankan survey, which closely tracks the BOJ's quarterly business survey.

Manufacturers expect the index to decline further to plus five over the next three months, the survey showed.

"Auto sales are sluggish, especially in China," a manager at an auto and transport machinery firm wrote in the survey.

Managers from a wide range of industries such as chemicals, steel and electronics machinery said that subdued demand in China affected their business sentiment.

Higher inflation and volatile markets were also among worrying issues, the survey found.

"Uncertain factors such as the cost of raw material and foreign exchange rates are increasing," a manager at a rubber company wrote.

The Reuters poll was conducted from July 31 to Aug. 9, during which Japanese stocks plunged in their biggest single-day rout since 1987's Black Monday selloff, after weak U.S. labour data raised recession fears, and the yen surged against the dollar as investors unwound the carry trade.

The Reuters Tankan service-sector index eased for a second month to plus 24 in August from plus 26 in July. Non-manufacturers expect the index will rebound to plus 26 in November. Solid inbound demand underpinned the sector's confidence.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic responses from optimistic ones. A positive figure indicates optimists outnumber pessimists.

A total of 506 large non-financial firms were surveyed and 243 firms responded on condition of anonymity for the August poll.