Japan's economy returns to growth in Q2

But economists and politicians sounded cautious, noting that the main driver of growth was exports and that domestic consumer spending remained fragile amid plunging incomes and rising unemployment.

The recovery in the April-June quarter was driven by robust demand for cars, video recorders and other electronics goods, according to government data. Shipments to China and other emerging markets were particularly strong, although exports to the US and Europe also showed modest recoveries. Exports grew 6.3 percent from the previous quarter, the highest rate in seven years.

Government stimulus measures have also helped, such as cash handouts and incentives to buy ecological products.

During the quarter through June 30, compensation for employees dipped 1.7 percent, the data showed, while consumer spending edged up a tepid 0.8 percent.

Investors sent stocks plunging on dismay the numbers weren't even stronger and on anxiety about Friday's weak US consumer confidence report. The Nikkei 225 lost 3.1 percent to finish at 10,268.61.

Compared to the previous quarter, Japan's GDP expanded 0.9 percent in April-June. If that rate were maintained for a full year, the economy would grow 3.7 percent.

That was better than the 3.0 percent rate projected by the Economic Planning Association, a government-affiliated group of economists.

Also Monday, the government said in revised data that the economy had contracted 3.2 percent in the fiscal year through March 31, following 1.8 percent growth in the previous fiscal year, ending March 2008; Kazinform cites China Daily. See www.chinadaily.com.cn for full version.