UPDATE 2-Japan machinery orders edge up, capex still weak

(For more stories on the Japanese economy, click [ID:nECONJP])

* Core machinery orders up 0.5 pct after record low

* Data suggests capex recovery unlikely until mid-2010

* Average orders over past three months flat (Adds details, government comments)

By Rie Ishiguro

TOKYO, Oct 9 (Reuters) - Japanese core machinery orders edged up only slightly in August from a record low hit the previous month, suggesting stagnant capital spending will weigh on Japan's tentative economic recovery.

Japan pulled out of its worst postwar recession in the second quarter thanks to rebounds in exports and the restocking of inventories but companies still fret that the damage wreaked by the global crisis could drag on for a long time.

"The reading was a bit disappointing. Recent data on capital spending has been mixed ... Today's machinery orders data suggests any recovery in capex will be slower than some people had hoped," said Seiji Adachi, a senior economist at Deutsche Securities.

The 0.5 pct rise in core machinery orders, a volatile figure seen as a leading gauge of capital spending, was smaller than a median market forecast for a 2.1 percent increase from July, when orders fell to a record low in comparable data going back to 1987. [JPMORD=ECI]

Averaged over the past three months, the orders have been flat.

For a graphic tracking machinery orders and capacity utilisation click r.reuters.com/fyf82f

"As the government maintained its assessment that falls in machinery orders are moderating, it expects the orders to bottom out sometime in the future. But the bottoming out has yet to happen," said Keisuke Tsumura, parliamentary secretary for economy.

Tsumura said orders from the manufacturing sector were bottoming out but those from non-manufacturers were still weak, with combined orders still down by more than a quarter from a year earlier.

"If you exclude disruptions in June and July due to one-off factors, orders have been essentially flat since May," said Hiroshi Watanabe, a senior economist at Daiwa Institute of Research.

"Japanese capex tends to be driven by exports, which in turn depends on the outlook of the world economy. At the moment it is hard to expect a strong recovery in the economy, so capex is unlikely to be the main driver for the Japanese economy for now."

By sector, orders from makers of computers, steel and transport gear contributed to the rise but the shipping and oil industries were still weak.

Orders from general machine makers, one of the country's leading industries, fell for the third month in a row, in a sign that companies are in no rush to buy new machinery as they have underutilised capacity.

The Bank of Japan's closely watched tankan survey showed this month that large firms plan to cut their capital expenditure by 10.8 percent in the year to March. [ID:nL1432448]

The weak orders come as the Bank of Japan debates whether to phase out its unconventional measures supporting corporate finance, including some purchases of corporate debt. The BOJ is due to hold a two-day policy board meeting on Oct 13-14. (Editing by Michael Watson)