* Factory output up 5.2 pct, biggest monthly gain since 1953
* Govt stimulus seen boosting demand but capital spending weak
* Household spending slides, unemployment at 5-1/2-year high
* Mild deflation as weak demand adds to commodity price falls (For more stories on the Japanese economy, click [ID:nECONJP])
By Tetsushi Kajimoto
TOKYO, May 29 (Reuters) - Japanese factory output jumped in April at the fastest rate in more than half a century, and manufacturers forecast further gains even though there were only tentative signs that global demand was rebounding from the worst recession in decades.
Much of the output was either restocking of depleted inventory or a result of stimulus spending in China and other major economies. A survey of manufacturers showed new export orders were still contracting, albeit at a slower pace.
Industrial output rose 5.2 percent in April, the biggest monthly gain since 1953, and sharply higher than the median market forecast for a 3.2 percent rise.
"The recovery in output came largely as exports levelled out and manufacturers rapidly carried out inventory adjustments," said Junko Nishioka, chief economist for Japan at RBS Securities.
"Japan's stimulus steps will also help the economy to post growth in April-June, but that won't lead to sustainable growth as domestic demand weakens due to poor job conditions and U.S. consumption falters because of the slump in housing markets."
The tentative recovery in the industrial sector has yet to spread to the rest of the economy, with unemployment hitting a 5-1/2-year high and the country stuck in mild deflation.
The Japanese output data follows upbeat reports in the West.
In the United States, new orders for durable goods saw their biggest gain in 16 months in April, and fewer workers filed for new jobless benefits last week.
The euro zone business climate index rose in May for the second month running -- albeit from a very low point -- indicating that output is recovering but remains subdued.
In Japan it was the second month in a row of production increases after five months of decline and was driven in part by demand for electronic parts in China and automobiles in Europe.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected their output to jump 8.8 percent in May and a further 2.7 percent in June.
Illustrating the hefty reduction in unsold goods and materials, the ratio of inventories to sales made fell 4.9 percent after hitting a record high in February.
For a graphic showing Japan's output and inventories, click:
For a graphic tracking U.S., European and Japanese production, click:
Analysts say some companies might be producing more in the hope of a pickup in domestic demand that will get a boost from the government's stimulus measures.
"Exports will likely grow 3-4 percent next month from April but industrial output will rise far more than that due to the effects of the government's stimulus steps on automobiles and electronic goods," said Hiroshi Watanabe, an economist at Daiwa Institute of Research.
The yen got a slight lift after the output data, and was up 0.6 percent against the dollar at about 96.33 yen. JPY= [FRX/]
There are growing signs that companies are gearing up production. Toyota (7203.T) and Honda (7267.T) have reported strong demand for their hybrid cars, helped by government subsidies, while Toshiba Corp (6502.T) was reported on Friday to be ready to reverse some chip output cuts. [ID:nT17437]
In another sign the worst of the recession may be over, the Nomura/JMMA Japan Manufacturing Purchasing Managers Index rose in April together with an index for new export orders. But both indexes stayed slightly below the line that separates contraction from expansion. [JP/PMIM]
There have been modest signs of an improvement in exports, with shipments to China, Japan's biggest trade partner, declining at a slower pace in April than a year earlier.
With production still only around levels seen in 1984 and 70 percent of the levels seen a year earlier, however, both analysts and government officials remained cautious on the outlook.
Many companies are still hesitant to boost output beyond what is needed to restock on uncertainty over the outlook for Western markets. Capacity utilisation stood at 61.0 as of March, barely above a record low seen the previous month.
Underlining weakness in capital investment, shipments of capital goods excluding transport equipment tumbled 14.7 percent in April, while those of both durable and non-durable consumer goods were up 2 percent and 0.8 percent respectively.
Japan relies on its car and technology firms for growth, and the slide in world demand after the collapse of Lehman Brothers last September sent the economy, already in a deep recession, to its sharpest quarterly contraction on record in January-March.
Weak demand, on top of falling oil and other commodity prices, has pushed Japan back into mild deflation, with core consumer prices falling 0.1 percent in April from a year earlier.
For a graphic tracking U.S., European and Japanese CPI, click: here (Additional reporting by Leika Kihara and Stanley White; Editing by Hugh Lawson)