* Japan capex data signals Q4 GDP may be revised down
* Companies' profits plummet, sales post record fall in Q4
* Hopes on China economy boost Japanese share prices
* Japan economy seen contracting until at least Q2
By Tetsushi Kajimoto
TOKYO, March 5 (Reuters) - Japan may have sunk deeper into recession in the fourth quarter, a survey on companies' capital spending showed on Thursday, as the export-reliant economy grapples with the global downturn.
An initial estimate of Japan's fourth-quarter GDP showed it shrank a record 3.3 percent, and the spending survey suggests that contraction may have been even bigger.
With all Group of Seven (G7) economies contracting and world trade shrinking sharply, profits at Japanese manufacturers are evaporating, hitting at the heart of the growth engine for Japan, the world's second-largest economy.
Economists expect a further big fall in GDP for the first quarter of 2009, and with domestic consumption also weak they see no recovery until later in the year.
"Fourth-quarter GDP is likely to be revised down, going by these capital spending figures," said Hiroshi Shiraishi, an economist at BNP Paribas.
"Current profits in major manufacturing sectors have virtually evaporated, although that was largely expected going by recent media reports."
Markets looked past the figures, however, to focus on signs of a turnaround in China's economy after a key gauge of Chinese manufacturing improved for the third month in a row.
Tokyo's Nikkei share average rose 2 percent while Japanese bond futures slipped as the Chinese data encouraged hopes for a recovery in Japan's economy.
China vowed on Thursday to meet its 8 percent growth target this year by ramping up spending and helping exporters.
"Exports to Asia have fallen since November. But they will probably start recovering from March," said Soichi Okuda, chief economist at Sumitomo Shoji Research. He said regional trade within Asia is frozen, but China's stimulus could help thaw it.
CAPEX STALLS
The fourth quarter for Japanese companies looked bleak, however, as exports tumbled and they wound back capital spending as factories cut production and staff.
Japanese private-sector spending on plant and equipment fell 17.3 percent from a year earlier, the Ministry of Finance survey showed, a slightly bigger fall than the market median forecast for a 16.6 percent slide.
It was the largest fall in comparable data going back to July-September 2002, although the fall was exaggerated by changes in accounting rules on leasing.
The data is closely watched as it will be used in calculating revised October-December GDP, due out at 8:50 a.m. on Thursday March 12 (2350 GMT Wednesday).
Economists said Thursday's figures suggest the capex component of GDP will be revised down, and the overall GDP figure could also be cut.
A preliminary estimate showed the economy shrank 3.3 percent, the biggest contraction since the first oil crisis in 1974 and its third straight quarter of contraction.
The economy is expected to keep shrinking for at least two more quarters as manufacturers slash production to shift piles of unsold goods as global demand for cars and electronics plunges.
There are hopeful signs, with major carmakers looking to restore some of the production cuts in the coming months, but a rapid recovery is not on the cards.
"I expect the pace of contraction to slow gradually in the coming quarters. But we'll probably have to wait until the fourth quarter of this year to see positive growth," said Junko Nishioka, chief economist at RBS Securities.
The survey showed Japanese companies' profits fell 64.1 percent from a year earlier to 5.1 trillion yen ($51.42 billion), the lowest level for the October-December quarter since 1985.
Sales were down 11.6 percent, the largest fall on record.
To cope with what many company executives describe as an unprecedented downturn, leading exporters such as Toyota Corp and Sony have cut jobs, raising fears that already weak domestic consumption could slide.
Prime Minister Taro Aso has proposed a 75 trillion yen ($769 billion) package to shore up the economy, but the increasingly unpopular leader is faced with a divided parliament and calls for an early election that could delay fresh policy moves.
The Bank of Japan cut interest rates in October and again in December, bringing them to 0.10 percent, and has taken a series of steps to support corporate finance since late last year.
While some of the BOJ measures have helped alleviate some of the tensions in financial markets, credit spreads remain high as the bleak outlook fans fears of rising bankruptcies. ($1=99.17 Yen) (Writing by Hideyuki Sano; Editing by Michael Watson)