* Big manufacturers' sentiment index +16 vs Sept +12 * Service-sector mood also up on demand before sales tax * Big firms plan 4.6 pct increase in FY2013/14 capex * BOJ seen standing pat on policy for time being-analysts By Leika Kihara and Tetsushi Kajimoto TOKYO, Dec 16 (Reuters) - Japanese business confidence improved over the three months to December to its highest level in six years, a central bank survey showed, suggesting Prime Minister Shinzo Abe's "Abenomics" stimulus policies are gaining broader traction across the economy.
The Bank of Japan's quarterly "tankan" survey showed sentiment brightened not just for big firms but also for smaller companies, which had been slower to reap the benefits of a recovering economy.
Small manufacturers' sentiment hit a six-year high and the small non-manufacturers' index turned positive, which means optimists outnumbered pessimists, for the first time since 1992.
The tankan reinforces the BOJ's view that the economy is recovering moderately under and likely allowing it to hold off on expanding stimulus in coming months, analysts said.
"The economy is moving in line with the BOJ's forecasts, which means the central bank will keep monetary policy steady at least next week and in January," said Junko Nishioka, chief Japan economist at RBS Securities.
The headline index for big manufacturers' sentiment improved 4 points from the previous quarter to plus 16, the tankan showed on Monday, slightly above a median market forecast of plus 15.
It was the fourth straight quarter of improvement and the highest level since December 2007, as companies benefited from robust domestic demand and a weak yen that gives their goods a competitive advantage overseas.
Service-sector mood also improved as consumers rushed to beat a sales tax hike next April. The big non-manufacturers' index was up 6 points to plus 20, better than a median forecast of plus 16 and the highest level since December 2007.
"Figures in the services sector were especially bright, and the positive mood is a sign that optimism is finally spreading into domestic demand-sensitive sectors from exporters," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo.
SO FAR SO GOOD Japan's economy outpaced its G7 counterparts in the first half of this year as Abe's stimulus policies boosted business and household sentiment. Growth slowed in July-September on soft exports, but analysts expect it to accelerate again in the run-up to the sales tax hike.
Public works spending is also likely to offset the continued weakness in exports, thanks to a fiscal stimulus package aimed at softening the blow of higher sales tax.
The BOJ has said the economy can handle the pain from the sales tax hike and still meet the bank's goal of achieving 2 percent inflation in roughly two years, due in part to the effect of its aggressive monetary stimulus launched in April.
The central bank is thus widely expected to keep monetary settings unchanged at its next rate review on Dec. 19-20.
The tankan gave the BOJ few reasons to ponder imminent easing. Companies see less slack in jobs and expenditure, and are enjoying rising profits due in part to the weak yen.
Big manufacturers revised up their dollar/yen projections for the current fiscal year ending in March to 96.78 yen from 94.45 yen three months ago. That is still a conservative forecast considering the dollar is now moving around 103 yen.
Some analysts now discount heightening market speculation that the central bank will ease again in April, when household spending will take a hit from the sales tax hike.
"I don't think the BOJ will rush in easing, given the economy is on track and how its forecasts already take into account the tax hike impact," said Nishioka of RBS.
"Of course, the BOJ may act if external factors, such as a yen spike, hit business sentiment. But I don't think the chance of an April action is high." A Reuters poll conducted earlier this month found that almost two-thirds of Japanese firms expect the BOJ to increase its stimulus in the first six months of 2014.
There are factors that cloud the outlook, such as weakness in emerging economies that have capped export growth.
Big manufacturers and non-manufacturers both expect business conditions to worsen slightly in the three months to March, the tankan showed, highlighting their uncertainty on whether the economy will sustain its momentum.
Big firms are seen raising capital spending by 4.6 percent in the current business year to next March, down from 5.1 percent seen in the previous tankan. That was less than a median market forecast for a 5.5 percent increase, underscoring the difficulty the BOJ faces in trying to nudge firms into boosting spending.
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