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UPDATE 1-Japan household spending rise but wages tumble in March

Kaori Kaneko and Tetsushi Kajimoto

(Recasts, adds detail and background)

* March household spending up 2.1 pct yr/yr vs f'cast +1.7 pct

* Real wages fall 2.5 pct in March, biggest fall in four years

* Some economists expect Q1 GDP to suffer mild contraction

TOKYO, May 10 (Reuters) - Japan's household spending rose more than expected in March but real wages tumbled the most in nearly four years, dashing hopes that consumer sector activity may soften the blow from external factors such as global trade conflicts.

Household spending gained 2.1 percent from a year earlier, government data showed on Friday, beating a median market forecast for a 1.7 percent increase.

But separate data showed inflation-adjusted real wages fell 2.5 percent in March from a year earlier, the biggest decline since June 2015, casting doubt about the resilience of consumption.

A recovery in domestic consumption is crucial for the Bank of Japan to meet its 2 percent inflation target. For years, weak spending has caused many companies to refrain from raising prices.

The government plans to raise the sales tax to 10 percent from 8 percent in October to cover rising welfare costs, unless there is an economic crisis on the scale of the Lehman Brothers shock in 2008.

Some policymakers worry that the tax hike could hurt consumer spending, as happened when Japan in 2014 raised the tax to 8 percent from 5 percent.

Due to damage from the U.S.-China trade war and weak foreign demand, some economists believe that the economy contracted slightly in the first quarter. Data for January-March will be released on May 20. (Reporting by Kaori Kaneko; Editing by Sam Holmes)