Japan April core machinery orders up, pointing to more capex spending

(Adds economist comment, detail)

* Core orders +3.8 pct m/m vs forecast -2.0 pct

* April orders +3.0 pct yr/yr vs forecast -1.3 pct

* Govt upgrades assessment of machinery orders

* Capital (Other OTC: CGHC - news) spending seen crucial for virtuous growth

By Stanley White

TOKYO, June 10 (Reuters) - Japan's core machinery orders

unexpectedly rose in April at the fastest pace in four months,

in a sign companies are turning more optimistic about business

investment as domestic demand strengthens.

The 3.8 percent month-on-month rise in core orders, a highly

volatile data series seen as an indicator of capital spending in

the coming six to nine months, compares with the median estimate

of a 2.0 percent annual decline and follows a 2.9 percent

increase in March.

Improving business confidence and record corporate profits

suggest that companies have the capacity to expand investment as

long as domestic demand holds steady, which is essential to

driving a virtuous cycle of more robust economic growth.

"Capital expenditure is headed in the right direction,

reflecting an improvement in domestic demand," said Shuji

Tonouchi, senior fixed income strategist at Mitsubishi UFJ

Morgan Stanley Securities.

"The broad economy should be able to maintain stable growth,

which will be a relief for policymakers."

Orders from manufacturers rose 10.5 percent in April from

the previous month, the fastest increase in nine months due to

gains from auto and electronics manufacturers, Cabinet Office

data showed on Wednesday.

Orders from the services sector fell 0.6 percent versus a

4.7 percent increase in the previous month due to lower spending

on communications equipment

Compared with a year earlier, core orders rose 3.0 percent,

versus the median estimate for a 1.3 percent annual decline.

The Cabinet Office raised its assessment of machinery

orders, saying they are recovering.

The data comes after first-quarter gross domestic product

growth was revised up due to robust gains in capital

expenditure.

Japanese manufacturers' sentiment improved in May and the

service-sector's mood rose to its highest level in a year due to

healthy consumer spending, the Reuters tankan survey showed.

Positive economic momentum could benefit the Bank of Japan,

which is trying to guide inflation to its 2 percent price target

in the first half of fiscal 2016 with its massive quantitative

easing programme.

(Editing by Joseph Radford)