* Manufacturers sentiment index -18, non-manufacturers +5
* Economy shows signs of bottoming out, severity remains
* BOJ under pressure to ease again to pep up economy
* Reuters tankan highly correlated with BOJ tankan
By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO, Dec 6 Sentiment among Japanese manufacturers has edged up for the first time since July, a Reuters' poll showed on Thursday, in a sign that the economy may have bottomed out even as sluggish global demand continues to weigh on business confidence.
The poor reading in the Reuters' tankan, which closely correlates with the Bank of Japan's tankan survey, bodes ill for the BOJ's poll due out on Dec. 14, which could keep the central bank under pressure to ease policy again to pep up the world's third-biggest economy.
Sentiment among non-manufacturers, including retailers and construction firms, improved in December for the first time since May, helped by firm domestic demand led by rebuilding from last year's earthquake and tsunami.
Sluggish economic indicators could prompt the next government to compile a big stimulus package to lift the economy after the election for parliament's lower house on Dec. 16.
Market players expect the BOJ may ease policy as early as at its Dec. 19-20 meeting, just days after the election, in which the main opposition Liberal Democratic Party (LDP) looks to be on track for winning a solid majority.
"The data showed some signs that the economy may have bottomed out and it is likely to resume picking up, partly as slump in exports to China due to a territorial row has run its course," said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"Still, the sentiment remains sluggish and the BOJ tankan will probably worsen from the last poll for the July-September quarter. As such the bank may ease policy again this month."
MOOD STILL SUBDUED
In the Reuters Tankan, the manufacturers' sentiment index rose by a point to minus 18 in December, hovering near the lowest level in three years registered the previous month, while readings slumped for firms exporting electric and precision machinery.
The index, derived by subtracting the percentage of pessimistic responses from optimistic ones, is expected to recover slightly to minus 16 in March.
"Orders we receive are not recovering well. We cannot see factors that point to favourable conditions in the future," one metal machinery firm said in the Reuters poll.
An electric machinery firm said: "We're losing our competitive edge against Asian rivals due to the strong yen. Demand related to Christmas sales is lacking momentum."
The index for non-manufacturers rose four points to plus 5, led by real estate and construction, which could benefit from reconstruction after last year's disaster. The index is seen slipping to plus 4 in March.
Japan's economy outperformed growth of other G7 nations in the first half of this year due to robust private consumption and spending for reconstruction. But the global slowdown is thought to have pushed the economy into recession in the second half.
The economy likely shrank at a slightly slower pace in the third quarter than the government initially estimated because a fall in companies' capital spending may have been less than suggested in preliminary data, according to a Reuters poll.
Analysts judge that the economy will likely show a contraction for the final three months of this year, which would technically meet the definition of a recession. Many expect activity to pick up early next year if global growth recovers.