NEW YORK, Oct 30 (Reuters) - Business activity in New York City expanded for the third straight month in October, its strongest recovery stretch in almost two years, according to an industry report released on Friday. The Institute for Supply Management-New York's seasonally adjusted index of current business conditions was 60.8 in October, coming off a nearly three-year high of 72.9 reached in September. However, activity was still expanding as the level of 50 separates growth from contraction. The group's index of local business activity rose to 377.9 from the 372.5 September reading. Optimism for the future persisted for the eighth straight month in October, although at a tamer pace. The six-month outlook index edged down to 68.9 from 69.5 in September. Purchasing volumes and employment conditions continued to deteriorate at smaller rates compared with figures reported earlier this year. The report's purchasing volumes index rose to 46.7 from 46.1 in September, while its employment index slipped to 45.7, coming off September's 21-month high of 47.3. Still, nearly all of the group's members surveyed said their businesses run on temporary or contract workers -- a leading indicator of the labor market. Over half of those who use temporary employees said they plan to continue that strategy over the next six months, and 25 percent said they plan to increase that part of their workforce. Cost pressures, though still down from one year ago, eased as the prices paid index fell to 39.4 from 41.9 the previous month. While working capital shortages are still a major concern at businesses in the region, the group said the past two months saw back-to-back improvement that is in step with the index's overall expansion. Just over a fourth of the firms surveyed cited a lack of capital as an obstacle.

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