* Ruling parties finalising 15 trln yen stimulus spend -source
* Income on overseas investments falls due to turmoil
* Sliding exports, income halve Japan current account surplus
* Service sector sentiment hits 8-month high on stimulus hopes
By Yuko Yoshikawa and Hideyuki Sano
TOKYO, April 8 (Reuters) - Japan's ruling coalition parties are in final talks on a stimulus package with $150 billion in fiscal spending, a source briefed on the matter said, as the economy grapples with deep recession triggered by diving exports.
Officials from the two ruling coalition parties are talking into the night in Tokyo to hammer out of Japan's fourth stimulus package in a year as the world's second largest economy suffers its worst recession since World War Two.
Highlighting the woes facing an economy reliant on exports and foreign investment to make up for weak domestic demand, Japan's current account surplus halved in February from a year earlier as exports and overseas earnings sank.
The new package will add to spending of 12 trillion yen already planned under previously announced stimulus measures, doubling the total to around 4 percent of GDP.
Finance Minister Kaoru Yosano had said he hoped to announce details of the package on Wednesday, and ruling party officials said they agreed to decide on its outline by the end of the day.
Included will be the creation of a safety net for contract workers, measures to help corporate financing and increased spending on solar power systems, Yosano has said.
Many economists say fiscal spending is needed to cushion the blow from a shrinking economy in view of a sharp contraction since October, but some warn a ballooning public deficit could have consequences eventually.
"The economy is suffering because exports are falling in a weakening global economy. The problem is that if the government wants to make up for exports with deficit spending it will end up spending more," said Itochu Corp chief economist Seiya Nakajima.
Much of the latest spending is expected to be financed by issuing more government bonds.
Worries over an increase in government debt have weighed on the bond market, helping push the yield on 10-year Japanese government bonds to a 4 1/2-month high this week.
Fiscal spending plans around the world have helped lift Japan's Nikkei average more than 20 percent in about a month, but wariness over earnings prompted profit-taking on Wednesday.
Japan's service sector sentiment jumped to an eight-month high in March, as government plans to hand out one-time payments to individuals boosted sentiment, while companies reported progress in inventory adjustments.
In the survey of workers such as taxi drivers, hotel staff and restaurant staff -- called "economy watchers" for their proximity to consumer and retail trends -- the index of their confidence in the economy rose to 28.4, from 19.4 in February.
Though below the 50 mark that separates optimism and pessimism, it was the highest reading since July.
Ryota Sakagami, an economist at Nomura Securities, said the reading suggests a rebound in the economy as the survey tends to precede Japan's industrial production trends by a few months.
"A rebound in April-June could be bigger than we've been expecting, even though we don't expect a full-fledged recovery," he said.
The Bank of Japan said in a monthly report that falls in exports and output will likely moderate, although the BOJ added that the economy would keep deteriorating for the time being.
SAFETY NET
The government package will include encouragement to buy energy-efficient electronics, and 37 trillion yen to helps companies caught in a credit squeeze raise cash, the Nikkei Business Daily said.
Also expected are measures to help the jobless, promote the use of solar panels and fuel-efficient cars and spending on medical facilities, farming and fishing, Kyodo News said, quoting a draft of the extra budget it had obtained.
"The government's economic package will be large but a lot of steps will be safety nets, so that alone is unlikely to galvanise domestic demand," said Susumu Kato, chief economist at Calyon.
The Japanese economy shrank 3.1 percent in October-December from the previous quarter and is expected to have shrunk a further 2.5 percent in January-March.
The contraction is bigger than in other major economies, despite Japan's banks being among the least damaged by the credit crisis, because the economy is heavily reliat on exports of cars and electronics that have faced global slumps in demand.
Japan's current account surplus fell 55.6 percent in February from a year earlier as exports wilted, with the financial crisis pummeling both Japan and its export destinations. The current account measures the difference between exports and imports of goods and services as well as income from investments.
The income surplus shrank 34.1 percent, the biggest fall in nearly three years, as companies earned less from overseas securities and direct investment, the data showed. ($1=100.17 Yen) (Editing by Hugh Lawson and Rodney Joyce)