By Tetsushi Kajimoto
TOKYO (Reuters) - Japanese companies raised spending on factories and equipment in the July-September quarter, but the slow pace of increase casts some doubt on the strength of capital spending that is needed to help sustain economic growth.
The 1.5 percent year-on-year rise in capital spending followed a flat reading in the prior quarter and marked the first gain in four quarters, Ministry of Finance data showed on Monday, but the result disappointed some economists who were expecting stronger gains.
The reading suggests that Japan's gross domestic product growth for July-September is likely to be little changed, after preliminary data showed a 0.5 percent expansion from the previous quarter, or an annualized rate of 1.9 percent.
The capital spending data will be used to calculate revised third-quarter GDP data, which is scheduled for release at 8:50 a.m. on December 9 (2350 GMT December 8).
"There is not likely to be much change to GDP data," said Shuji Tonouchi, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"There are some worrying signs, as capital expenditure in the services sector is losing some momentum."
Excluding software, corporate capital spending declined 0.5 percent on a seasonally adjusted basis in July-September from the previous quarter, down for the first time in four quarters, the Ministry of Finance data showed.
Capital spending has been a weak spot in Japan as Prime Minister Shinzo Abe struggles to spur business investment and wage increases at many companies, which remain unconvinced that his reflationary policies will have a lasting impact.
Monday's data also showed that companies' recurring profits rose 24.1 percent in July-September from the same period last year, up for a seventh consecutive quarter.
Companies' sales rose 0.8 percent in the third quarter from a year earlier, the first rise in six quarters.
Japan's economic growth has outpaced that of its G7 peers this year, but the pace slowed in July-September as private consumption and exports moderated.
Economists expect growth to pick up pace again in the current quarter as consumers rush to buy goods before a national sales tax hike to 8 percent from the current 5 percent next April.
(Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher)