* BOJ tankan: record pessimism past but view still negative
* Corporate funding eases but BOJ seen continuing support
* Big firms' capex plans weaker than expected (Recasts, adds comments, background)
By Hideyuki Sano
TOKYO, July 1 (Reuters) - Japanese business morale improved less than expected in June, plagued by doubts about the global economy, giving the central bank little room to retreat from ruptured corporate finance markets as early as September.
Large manufacturers, their export markets wrecked by the financial crisis, plan a record reduction in capital spending this fiscal year, nearly twice as much as they forecast in March when talk of recovery triggered a global stock market rally.
The mood among smaller companies was darker still, and across the board there were concerns that firms were not seeing anything like the demand needed to maintain payrolls at current levels or start using mothballed plants.
"The overall impression is that Japanese firms are facing a more severe situation than market players think," said Susumu Kato, chief economist at Calyon Capital Markets Japan.
The survey's main sentiment index for big manufacturers improved to minus 48 in June from a record low of minus 58 in the previous quarterly survey in March, the first rise in two and a half years.
That was still worse than a median forecast in a Reuters poll of minus 43, and pessimists still far outnumbered optimists.
The market was also watching the tankan's gauges of corporate funding because the BOJ said it would take its cue from the survey when it reviews programmes to buy and lend against corporate bonds and commercial paper in September.
The survey showed the corporate finance market, which seized up after U.S. investment bank Lehman Brothers collapsed in September, was on the mend.
The financial conditions index for large companies rose 5 points to plus 1, the first improvement in eight quarters, while the gauge of conditions for issuing commercial paper gained for the first time in six quarters.
That was not enough to prod the BOJ into action at a time of growing concern that Japan was slipping deeper into its second spell of deflation this decade, analysts said.
"Many of the BOJ's measures to support corporate finance are no longer needed," said Takeo Okuhara, an economist at Daiwa SB Asset Management.
"But the BOJ is also wary of deflation and doesn't want to raise speculation that it will tighten its policy. So the BOJ will maintain those measures."
Weaker domestic demand helped drive a record drop in Japanese core consumer prices in May, and the highest unemployment rate in 5-½ years is threatening to overwhelm government efforts to revive domestic spending.
The employment index for all firms, which tends to lead jobless rate trends, rose to plus 23 from 20 in March, showing companies feel their staff exceed their business needs by the widest margin in 10 years.
And there was no sign companies believed a tentative rebound in exports, driven mainly by restocking of depleted inventory, would translate into growth in demand.
Big manufacturers plan to cut their capital spending by a record 24.3 percent in the fiscal year that started on April 1, the survey showed. In March they had been planning a 13.2 percent cut.
Capital spending sank at a record pace in the first quarter, dragging GDP into a record contraction that many economists believe was the nadir of this recession. Economists polled by Reuters expect 0.4 percent growth in April-June.
Most companies said they expect business conditions to improve in the next three months. Big manufacturers' outlook for September stood at minus 30. (Additional reporting by Tetsushi Kajimoto, Leika Kihara and Stanley White; Editing by Dayan Candappa and Michael Watson)