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By Hideyuki Sano
TOKYO, Nov 10 (Reuters) - Japan's core machinery orders suffered their biggest quarterly fall in a decade and manufacturers saw a weak rebound as companies brace for global recession by cutting capital investment.
Major Japanese companies, including the world's biggest automaker, Toyota Motor Corp, have been slashing their earnings forecasts as the financial crisis spread around the world.
"It is apparent that Japanese firms are losing their appetite for fresh investment in the face of falling profits and weakening overseas demand and production," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.
Core orders, which excludes those for ships and machinery at electric power firms, fell 10.4 percent in July-September from the preceding three months, matching a record low in April-June 1998, government data showed.
A 5.5 percent rise in core orders, seen as a leading indicator of capital spending, in September was not enough to offset falls in the previous two months.
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Manufacturers forecast that core orders would rise 1.2 percent in October-December from the big drop in July-September but economists say actual orders could fall short of this estimate due to expected further economic weakness.
"The forecast probably doesn't fully reflect the likely deterioration in the real economy following further turmoil in financial crisis since September. Orders are unlikely to meet that level," said Maiko Noguchi, senior economist at Daiwa Securities.
Japan's Nikkei stock average rose more than 5 percent on Monday, primarily on hopes that China's massive 4 trillion yuan ($586 billion) stimulus plan would shore up Japan's flagging exports of automobiles and machines.
Machinery orders have tumbled since summer as a growing number of Japanese companies suspend and postpone capital spending in the face of the turmoil in the global economy.
Toyota, the world's No.1 automaker, shocked investors last week by announcing a 63 percent cut in operating profits this financial year.
Toyota's revision epitomises the burden the Japanese economy is facing such as weakening consumption in key export destinations, sluggish domestic sales and a strong yen.
Growth in exports, which had weathered the initial shock of a fall in U.S. consumption thanks to strong growth in Asia, is grinding to a halt.
Consumer sentiment has been hurt first by a spike in oil prices and more recently by the global financial crisis, which has already let to the failure of a mid-sized Japanese life insurer.
In addition, the Japanese yen soared to a 13-year high last month in extremely volatile trade, as investors and hedge funds unwound leveraged investment positions they have financed by borrowing the yen to take advantage of the currency's low interest rates.
Japan's economy shrank at the fastest pace in seven years in April-June, and some economists think it may have contracted again in the three months that ended in September, although the median forecast is for growth of 0.1 percent.
Conditions look set to worsen in the coming months as the world economy, which Japan's export-driven economy relies on heavily, is now reeling from the financial problems in the United States and Europe.
To help ease the pain of the likely recession, Japan's government adopted a stimulus package including fiscal spending of around five trillion yen, despite the dire state of its budget.
The Bank of Japan, which has opted out of coordinated rate cuts earlier, also employed one of its few remaining ammunition last month by cutting interest rates to 0.30 percent from 0.50 percent.
The bank also said, while it still holds a gradual return to moderate growth by late 2009 as its central scenario, uncertainty is extremely large.
Derivative contracts are hardly pricing in any chance of another rate cut in coming months.
Still, some analysts think the BOJ may have to cut rates again in the future.
"The Bank of Japan could cut interest rates again early next year if markets become volatile," said Takeshi Minami, chief economist at Norinchukin Research Institute. ($1=6.825 Yuan) (Editing by Sophie Hardach)