Wires

UPDATE 1-Japan's August machinery orders fall for second straight month

Daniel Leussink

* August core orders -2.4% mth/mth vs forecast -2.5%

* Core orders -14.5 yr/yr in August vs expected -10.8%

* Core orders post biggest yr/yr drop since Nov 2014: Refinitiv data

TOKYO, Oct 10 (Reuters) - Japan's core machinery orders slipped for the second consecutive month in August, adding to a batch of gloomy data suggesting businesses and the broader economy are feeling the pain from rising global trade frictions.

Cabinet Office data on Thursday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, fell 2.4% in August from the previous month.

The drop was largely in line with a 2.5% decline predicted by economists in a Reuters poll and followed a sharp 6.6% fall in July, the largest month-on-month loss since a 7.8% drop in May.

Compared with a year earlier, core orders, which exclude those of ships and electricity, lost 14.5% in August, the biggest year-on-year drop since November 2014, Refinitiv data showed.

A bitter U.S.-China trade war and weakening global demand have clouded Japan's recovery prospects, but policymakers are putting faith in spending by consumers and businesses at home to offset the risks to the outlook.

Capital expenditure has been among the few bright spots in Japan's economy as non-manufacturers continue to invest heavily on automation to cope with a tight labour market, offsetting the weakness in manufacturers' spending. Declines in capex could add to speculation the government will boost spending.

The Bank of Japan has faced heightened expectations it could ease policy at its Oct. 30-31 board meeting to dampen the impact from weakening external demand.

In a sign of relief for policymakers, household spending rose for a ninth straight month in August, the longest such streak since comparable data became available in 2001, data on Tuesday showed.

Still, the outlook for Japan's economy, the world's third-largest, remains murky as manufacturers face challenges from prolonged contractions in exports and production.

While the economy grew an annualised 1.3% in the second quarter, some analysts have warned it could be left without growth drivers as the rollout of a sales tax hike this month may hurt domestic demand.

The Cabinet Office maintained its assessment on machinery orders to say they are showing a pick up.

By sector, core orders from manufacturers fell 1.0% in August from the previous month, declining again after rising in July, while those from the service-sector fell 8.0%, the Cabinet Office data showed.

(Reporting by Daniel Leussink Editing by Jacqueline Wong)