UPDATE 2-Japan manufacturers' confidence up -Reuters Tankan

(Click on [ID:nT202188] for table, [ID:nT162037] for story on companies' exchange rate forecasts and [ID:nT234943] for Instant View of economists' comments.) (Adds poll on BOJ tankan, paragraphs 6-7)

By Shigeo Kodama

TOKYO, June 19 (Reuters) - Japanese manufacturers' business sentiment nudged up to a five-month high in June, a Reuters survey showed on Tuesday, signaling that manufacturers remain the drivers behind the country's economic growth.

Sentiment of services firms such as retailers worsened for a second month to a 15-month low, however, a sign that the country's growth is still uneven and possibly hinting that household consumption is slowing.

"The weakness among retailers and the information service industry is a bit worrying," said Hiroshi Miyazaki, an economist at Shinkin Asset Management.

The Reuters Tankan, a monthly survey of leading Japanese companies, produced a diffusion index (DI) of plus 31 for manufacturing firms in June, the highest level in five months. It was up 2 points from May and up 3 points from March.

The figure augured well for the the Bank of Japan's quarterly tankan sentiment survey due on July 2, one of the most closely watched indicators in financial markets.

A separate Reuters poll of 10 economists showed a median forecast for the BOJ tankan stood at plus 23 for large manufacturers' DI, while the number for large non-manufacturers was forecast at plus 22, both unchanged from the BOJ tankan for March.

Economists said the tankan will likely support the case for a BOJ rate rise as early as in August, with the sentiment DI staying at high levels and big companies' capital investment plans seen to be revised upward from the previous tankan.

The BOJ's previous tankan published in early April showed Japanese big manufacturers' business sentiment slightly worsened in March from a two-year high hit in December.

The Reuters Tankan poll is designed to track the BOJ tankan. The DI is derived by subtracting the percentage of respondents who say business conditions are poor from the percentage who say they are good.

Japanese manufacturers' confidence rose on the back of robust growth in the world economy.

"We've seen exceptionally strong orders this year," a machinery maker said.

The upbeat mood among manufacturers also underscored expectations of a central bank rate hike, most likely in August.

"The Reuters Tankan only confirmed current conditions of the economy and did not change expectations for Bank of Japan rate hikes in the coming months," said Maiko Noguchi, senior economist at Daiwa Securities SMBC.

The DI for electric machinery makers, closely watched for clues on whether high-tech inventories are building up, rose to plus 40 from plus 32 in May. But it was down from plus 44 in March.

Business sentiment among oil refiners and ceramic makers improved sharply as many of them have managed to pass on rising material costs to their customers. Their DI rose to plus 56 from plus 37 in May and plus 10 in March.

In contrast, the DI for non-manufacturers worsened to plus 16 -- matching the reading of March 2006, compared with plus 21 in May and plus 23 in March. In April the DI bumped up to a near-three-year high of plus 26.

The DI for retailers slumped to plus 4 from plus 20 in May and also below plus 18 in March.

Consumer sentiment is weakening, one retailer said, because some prices are rising, local tax burdens are expected to increase in June, and worries are growing over mismanagement of public pensions.

But some other economists said retailers' DI tends to be volatile and that they do not expect a sharp deterioration in non-manufacturers' DI at the upcoming BOJ tankan.

Both manufacturers and non-manufacturers are upbeat about the future.

Manufacturers' outlook DI over the next three months stood at plus 34, or 3 points higher than their DI for current conditions.

Non-manufacturers' outlook DI was plus 21, up 5 points from their DI for current conditions.

The Reuters tankan survey was conducted from May 30 to June 14, with responses from 246 of 400 manufacturers and non-manufacturers surveyed.

FINDING REUTERS DATA ON REUTERS TANKAN

1. Press F4 for Quote window then type JPRTK and hit ENTER to access the latest Reuters tankan DI pages.

2. To view a Reuters Graph showing historical data for DI series, move cursor to the item you want and right click. Choose Related Graph.

3. In the graph, change the interval to monthly. (Additional reporting by Tetsushi Kajimoto)