* Big manufacturers' sentiment DI +12 vs June +4
* Service-sector sentiment also improves slightly
* Big firms plan 5.1 pct increase in FY2013/14 capex
* PM Abe likely to proceed with sales tax hike
By Leika Kihara
TOKYO, Oct 1 (Reuters) - Japanese manufacturers' sentimentimproved sharply in the three months to September to a nearsix-year high, a closely-watched central bank survey showed,cementing the case for Premier Shinzo Abe to proceed with aplanned sales tax hike next year.
Service-sector sentiment also brightened slightly and bigcompanies plan to increase capital spending, a sign robustpersonal consumption and a pickup in exports are solidifying arecovery in the world's third-largest economy.
The headline index for big manufacturers' sentiment rose 8points to plus 12 in September, much better than a median marketforecast for plus 7 and marking the third straight quarter ofimprovement, the Bank of Japan's "tankan" quarterly surveyshowed on Tuesday.
It was the highest reading since the survey of December2007, suggesting that the feel-good mood generated by Abe'sreflationary policies is broadening.
The latest result made it a near certainty Abe will give thego-ahead of the tax hike on Tuesday, and compile a stimuluspackage to cushion the blow to the economy, analysts said.
"This is very constructive in terms of the assessment of thecurrent economic situation. There is no reason that Abe shouldstop raising the sales tax," said Masamichi Adachi, senioreconomist at JPMorgan Securities in Tokyo.
Abe has cited the tankan outcome as key factor in decidingwhether to raise the sales tax from next April to 8 percent from5 percent, which is part of a two-stage increase in the tax rateaimed at fixing Japan's tattered finances.
The sentiment index for big non-manufacturers also rose 2points to plus 14 in September on the back of firm privatespending.
But there were some signs of potential weakness in theoutlook: Both big manufacturers and non-manufacturers expectbusiness conditions to stay largely unchanged three monthsahead, a sign the improvement in mood may have peaked.
Big firms plan to increase capital spending by 5.1 percentin the current fiscal year to next March, lower than 6.0 percentprojected in a Reuters poll. That was largely unchanged fromtheir plan three months ago, despite government plans to boosttax incentives to lure companies into spending more.
Japan's economy expanded for three straight quarters inApril-June, outpacing many G7 nations, as Abe's reflationarypolicies bolstered household spending and drove down the yen,benefiting exports.
The BOJ also offered an intense burst of stimulus in April,pledging to double the base money via aggressive asset purchasesto achieve its 2 percent inflation target in two years.
The central bank raised its assessment of the economy inSeptember to say it was recovering moderately. It is widely seenkeeping monetary settings unchanged at a rate review on Friday.
The sentiment indexes are derived by subtracting thepercentage of respondents who say conditions are poor from thosewho say they are good. A positive reading means optimistsoutnumber pessimists.
- Budget, Tax & Economy
- Shinzo Abe