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Japan Feb core consumer inflation edges up, hits 2-yr high

* Feb nationwide core CPI up 0.2 pct yr/yr vs f'cast +0.2 pct

* Tokyo March core CPI down 0.4 pct yr/yr vs f'cast -0.2 pct

* Feb jobless rate falls to 2.8 pct, lowest since June 1994

* Feb household spending down 3.8 pct yr/yr vs f'cast -1.7 pct

By Leika Kihara

TOKYO, March 31 (Reuters) - Japan's core consumer prices rose 0.2 percent in February from a year earlier, government data showed on Friday, marking the fastest annual pace in nearly two years but still distant from the central bank's ambitious 2 percent target.

With the increase driven largely by a rebound in fuel costs, the data underscores the challenges the Bank of Japan faces in generating sustained price rises backed by steady wage growth.

The rise in the core consumer price index (CPI), which includes oil products but excludes volatile fresh food costs, matched a median market forecast.

It followed a 0.1 percent increase in January and was the biggest rise since April 2015, when the index rose 0.3 percent.

Separate data showed Japan's jobless rate stood at 2.8 percent in February, down 0.2 percentage point from the previous month and hitting the lowest level since June 1994.

But household spending fell 3.8 percent in February from a year earlier, a bigger decline than the median market forecast for a 1.7 percent drop, highlighting weakness in private consumption.

Japan's long-stagnant economy has shown signs of life in recent months, with exports and factory output benefiting from a recovery in global demand.

Analysts expect consumer inflation to accelerate near 1 percent later this year as the base effect of last year's oil price falls dissipate.

That has led to a dramatic shift in market expectations, with a majority of analysts polled by Reuters predicting the BOJ's next move would be to start scaling back its stimulus.

With inflation far from his 2 percent target, however, BOJ Governor Haruhiko Kuroda has stressed that he sees "no reason" to dial back the bank's massive stimulus programme anytime soon.

BOJ officials have stressed that they would look at various data, not just the core CPI figure, in determining whether underlying trend inflation is accelerating backed by solid economic growth. They argue that wage rises must accompany price gains for inflation to sustainably hit 2 percent.

In a sign of the fragile nature of the inflation pick-up, core consumer prices in Tokyo, available before the nationwide data, fell 0.4 percent in March from a year earlier.

(Reporting by Leika Kihara; Editing by Eric Meijer)