UPDATE 1-Japan core machinery orders rebound in July, may signal capex recovery

recovery@ (Adds detail, context)

* July core orders +8.0 pct m/m vs forecast +4.4 pct

* Core orders -7.5 pct yr/yr in July vs forecast -7.3 pct

* Core orders serve as volatile but leading gauge of capex

* Capex recovery needed to sustain economic growth

TOKYO, Sept 11 (Reuters) - Japan's core machinery orders rose in July at the fastest pace since January 2016, rebounding from a third straight month of falls, an encouraging sign of the increased capital investment needed for sustained economic recovery. The 8.0 percent rise in core orders virtually doubled the 4.4 percent increase expected by economists in a Reuters poll. It followed a 1.9 percent decline in June. Orders from manufacturers rose 2.9 percent in July, driven led by computer equipment, Cabinet Office data showed on Monday. Machinery orders are highly volatile and analysts warn against reading too much into the monthly data. Nonetheless, Monday's news is likely to ease concerns about capital expenditure, which has lacked momentum lately with companies hesitant to spend despite record cash holdings. Government data showed last week that Japan's economy, the world's third largest, grew much less quickly in the April-June quarter than initially estimated due to a sharp reduction in corporate capital spending. The Cabinet Office stuck to its assessment of machinery orders, which it described as "stalling." Analysts expect capital expenditure to pick up gradually, backed by refurbishing and infrastructure investment for the 2020 Tokyo Olympic Games and spending on labor-saving equipment amid labor shortages. A sustained recovery in business expenditure should support the Bank of Japan's view that a virtuous circle of private sector-led growth will take hold in the economy. Still, wages and inflation remain stubbornly low despite recent signs of rebounding private consumption, keeping the central bank under pressure to maintain its massive monetary stimulus. Compared with a year earlier, core orders, which exclude ships and orders from electric power utilities, declined 7.5 percent in July, versus a 7.3 percent decrease expected by economists in a Reuters poll.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)