By Leika Kihara and Daniel Leussink
TOKYO, Aug 14 (Reuters) - Japan's core machinery orders unexpectedly rebounded in June to post their largest monthly expansion on record, in a sign corporate investment remains resilient to slowing global growth and international trade frictions.
Cabinet Office data on Wednesday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 13.9% in June from the previous month.
That marked the biggest month-on-month gain since comparable data became available in 2005. It also compared with a 1.3% drop seen by economists in a Reuters poll and a sharp 7.8% drop in May.
Policymakers are closely watching capital expenditure and hope domestic demand can offset risks to growth from a bruising U.S.-China trade war and slowing global demand. A weeks-long trade dispute between Japan and South Korea has also added to the strains on businesses.
Capital expenditure has been a bright spot in the fragile economy, helping second-quarter gross domestic product expand at an annualised rate of 1.8%, which beat analysts' projections.
However, growing global pressure threatens the outlook for Japan's export-reliant economy, the world's third-biggest, with risks to business confidence and investment tilted to the downside.
There are already some signs of domestic weakness as Prime Minister Shinzo Abe's government prepares to raise the national sales tax to 10% in October.
Household sentiment slipped for the third month in July to hit the lowest since April 2016, a Cabinet Office survey showed last week, suggesting consumers could tighten their purse strings even before the sales tax hike rolls in.
The previous tax hike to 8% from 5% in April 2014 knocked consumer confidence and set off an economic slump. Since then, Abe has twice delayed a planned sales tax hike.
The Cabinet Office maintained its assessment on machinery orders to say they are showing a pick up.
By sector, core orders from manufacturers slipped 1.7% in June from the previous month, falling again after logging a 7.4% drop in the prior month, while those from the service-sector jumped 29.5%, rebounding after dropping 10.0% in May, the Cabinet Office data showed.
Compared with a year earlier, core orders, which exclude those of ships and electricity, advanced 12.5% in June, it showed.
However, manufacturers surveyed by the Cabinet Office forecast core orders to drop 6.1% in July-September after a 7.5% rise in the previous quarter.
(Reporting by Leika Kihara and Daniel Leussink; Editing by Sam Holmes)
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