Japan machinery orders weak as firms avoid capex

* Machinery orders slide in April, capex seen still weak

* Lumbered with spare capacity, firms not seen investing

* Wholesale price slide speeds up, deflation pressure rising

By Leika Kihara

TOKYO, June 10 (Reuters) - Japan's core private-sector machinery orders slid in April, suggesting firms have yet to decide whether a bounce in industrial output and exports will be sustained enough to resume capital investment.

While there are growing signs the worst of the global economic crisis may be past, a 5.4 percent slide in sales of such factory equipment in Japan in April is further evidence that any recovery will be slow.

Adding to deflationary pressures, a 5.4 percent slide in wholesale prices in the year to May -- the biggest annual fall in 22 years -- showed weak demand was increasingly a problem.

"The orders data doesn't undermine the view that Japan's economy has bottomed out and exports are showing signs of recovery," said Chotaro Morita, chief fixed-income strategist for Barclays Capital in Japan.

"But given that capital spending will likely remain low due to oversupply and a cautious corporate outlook for investment, the orders data suggests that the economic cycle of exports leading to production, spurring investment and consumption may be weaker this time than usual.

The second monthly fall in core orders was much weaker than the median market forecast for a 0.4 percent rise in April, but the monthly series is a very volatile leading indicator of capex spending. Core orders exclude ships and utility purchases.

Still, orders are running one-third lower than a year ago, with many companies not seeing a need to increase capital spending with capacity utilisation barely above 60 percent.

Japanese factories had been running above 100 percent of capacity before the collapse of Lehman Brothers jolted global financial markets in September last year, and ended a strong run in capital expenditure that had been a key component of economic growth.

While global policymakers have suggested the bottom of the economic crisis has passed, no one is forecasting a strong rebound and analysts say the recovery signs are still tentative.

"It's too early to say the economy will continue to improve after autumn, when the impact of government stimulus starts to fade," said Credit Suisse economist Satoru Ogasawara.

Stocks shrugged off the weak data, with tech stocks leading the Nikkei share average up 0.5 percent after an improved outlook for Texas Instruments boosted Wall Street.

Shares in Komatsu, the world's second-largest maker of earth-moving equipment, rose 1.6 percent.

But in another sign of investor uncertainty, the dollar fell broadly in U.S. trade on Tuesday as questions grew about the strength of any U.S. recovery.

Similarly, analysts say any recovery by Japan from its worst recession since World War Two will be fragile as companies slash jobs, adding to already weak domestic demand.

While price falls have largely come from falling commodity prices, signs of weak demand is evident in falling final goods prices.

Final domestic goods prices fell 2.1 percent in the year to April, pointing to further pressure on consumer prices, which have entered their second bout of mild deflation this decade.

Core consumer prices started falling in the year to March, and both the Bank of Japan and economists expect at least two years of deflation. But opinions are divided about whether this will be mild or a more serious slide that prompts consumers to curb spending.

Revised government data on Thursday is expected to show the Japanese economy contracted 4.0 percent in the first quarter, the biggest contraction since World War Two.

However, analysts expect the economy to grow 0.5 percent in the current quarter -- the first rise in gross domestic product after four straight quarters of contraction.

Bank of Japan Governor Masaaki Shirakawa on Tuesday endorsed the view that the worst period for the economy seemed to be over, although he cautioned that Japan was still in the midst of an unprecedented financial crisis. (Additional reporting by Hideyuki Sano; Writing by Rodney Joyce; Editing by Hugh Lawson)