TOKYO, May 7 (Reuters) - Japan’s services sector activity contracted in April as coronavirus emergency measures hit businesses, though the pace of decline eased to its slowest since around the time the health crisis started in early 2020. Firms faced challenges over the short-term outlook as Prime Minister Yoshihide Suga’s government considers extending a state of emergency in Tokyo and other major areas beyond May 11, which could cast doubt on the planned Summer Olympics. The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 49.5 from the prior month’s 48.3, the slowest pace of activity decline in the current 15-month run of contractionary PMIs. Survey components showed firms faced uncertainty in the near future. New and outstanding business continued to contract, with survey participants reporting that emergency steps taken to contain the pandemic restricted demand. New export business suffered as foreign demand remained low due to the hit to international sales from ongoing coronavirus-related restrictions. However, the survey showed businesses remained optimistic about the long-term outlook as they were confident a broader vaccine rollout would spur a recovery of demand. “Confidence about the outlook for private sector activity remained strong in April, although the risks are inherently skewed to the downside,” said Usamah Bhatti, economist at IHS Markit, which compiles the survey. “Although infection rates have been rising, businesses were optimistic that the Olympic Games and a successful vaccination programme would stimulate a broad economic recovery.” Firms also reported the strongest rise in staffing levels in nearly two years, which was attributed to expansion efforts in preparation for a recovery in demand. The final au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, was 51.0 in April, posting its first expansion since January 2020. Reporting by Daniel Leussink; Editing by Sam Holmes Our Standards: The Thomson Reuters Trust Principles.