By Kaori Kaneko

TOKYO, Feb 7 (Reuters) - Japan's core machinery orders

surged unexpectedly in December, up for a third straight month

and firms expect more improvement in the first quarter, taking

heart from recent yen weakness on the back of Japan's aggressive

monetary easing stance.

Core machinery orders, a highly volatile data series seen as

a leading indicator of capital spending in the coming six to

nine months, gained 2.8 percent, against a median forecast for a

0.7 percent decline. It followed a 3.9 percent rise in November.

Companies surveyed by the Cabinet Office have forecast that

core orders, which exclude those for ships and machinery at

power utilities, will rise 0.8 percent in January-March from the

previous quarter.

The orders rose 2.0 percent in October-December, the first

increase in three quarters.

The positive data will support Prime Minister Shinzo Abe who

has pledged bold economic and fiscal policy to revive the

economy and beat deflation.

'Corporate capital spending is likely to have bottomed out

and head towards a recovery from January-March,' said Tatsushi

Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley

Securities.

'Companies have been cautious about capital spending due to

a strong yen but the yen's recent weakening and rising share

prices are expected to boost corporate profits and thus

encourage capital spending.'

Compared with a year earlier, core orders, which exclude

those for ships and electric power utilities, declined 3.4

percent in December, versus the median estimate for a 2.9

percent annual fall, Cabinet Office data showed.

The Cabinet Office raised its assessment of machinery

orders, saying there was a moderate pick-up, compared with its

previous view that orders were weakening as a trend.

Analyst expect the economy will grow moderately this year as

exports will pick up helped by global economic rebound and Abe's

ambitious economic policy.

In January, the government approved a 10.3 trillion yen

($110 billion) economic stimulus mainly for public works, the

biggest spending boost since the financial crisis.

Under relentless pressure from Abe for more aggressive

efforts to beat deflation, the Bank of Japan last month doubled

its inflation target to 2 percent and made an open-ended

commitment to buy assets from next year.

($1 = 93.5450 Japanese yen)

(Additional reporting by Tetsushi Kajimoto; Editing by Edwina

Gibbs)

Keywords: JAPAN ECONOMY/MACHINERY

(kaori.kaneko@thomsonreuters.com)(Reuters Messaging:)(kaori.kaneko.thomsonreuters.com@reuters.net)(+81-3-6 441-1983)

COPYRIGHT

Copyright Thomson Reuters 2013. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.