NEW YORK (Reuters) - The U.S. economy's factory sector expanded at a slower pace in July, as manufacturers remained wary on the possible fallout from Britain's vote to exit the European Union in June, according to an industry report released on Monday.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 52.6 from 53.2 the month before. The reading was just below expectations of 53.0 from a Reuters poll of 50 economists.

A reading above 50 indicates expansion in the manufacturing sector and a reading below 50 indicates contraction.

"It's a nice, well-balanced report. Comments were mixed leaning on the positive side," said Bradley Holcomb, chair of the ISM manufacturing business survey committee on a conference call with reporters.

The employment index fell to 49.4 from 50.4 a month earlier, marking the seventh time in the past eight months the index has registered a reading below 50. Expectations called for a reading of 50.3.

New orders dropped to 56.9 from 57.0. The prices paid index fell to 55.0 from 60.5, compared to expectations of 60.0.

“With Brexit, keeping [a] close eye on how this will impact our business,” a chemical producer told the group for its latest survey.

Of the 18 manufacturing industries ISM tracks for its monthly survey, 11 of them including petroleum and coal reported growth last month.

“Oil and gas industry sector continues to realign staff to reflect $40-$50/barrel oil. This price range is seen as the new normal for the foreseeable future,” a company official told the group.

U.S. oil futures <CLc1> fell almost 15 percent in July for their steepest one-month loss in a year due to concerns about global oversupply. They were last down over 2 percent at $40.66 a barrel in early U.S. trading on Monday.

(Reporting by U.S. financial markets desk; Editing by Meredith Mazzilli)