Although the figures are volatile from month to month, they fanned fears among some economists of a weakening in corporate investment - the brightest spot over the past year, in an otherwise gloomy economy. "The 2.9 per cent drop was weaker than expected and is a warning sign for the economy. It suggests a slowdown in capital spending, the engine behind the economy's recent recovery," said Mr Seiji Shiraishi, a senior economist with the Daiwa Institute of Research.

He and other economists said it would now be very difficult for machinery orders to hit the government's forecast of 7.6 per cent quarter-on-quarter growth in the October-December period.

To do so, orders would have to rise 18.6 per cent in December. "The numbers point out that strength in capital spending is peaking," Mr Takehiro Sato with Morgan Stanley Dean Witter said. "On the other hand, the December figures would have to show a four per cent decline or more, to undercut gains in the July-September quarter. So we may still expect a sixth consecutive quarter of gains in the October-December quarter," Mr Sato added.

The economy's reliance on capital investment, over the past year was reflected in the year-on-year data, which showed machinery orders up by 22 per cent from November 1999.

Mr Yasushi Okada, chief economist with Credit Suisse First Boston, said that at the current pace orders, for the October-December period would still be up 1.9 per cent on the previous quarter. "It would be a bit of a disappointment, but it is still too early to say that corporate capital spending is slumping. The July-September figure was exaggerated by an IT-related investment boom during the summer," Mr Okada said. Government bonds, which do well when the economy is weak, recouped earlier losses on the back of the machinery orders, the latest in a string of figures, showing that the economy is running into strong headwinds after a spurt of investment-led growth in the first half of 2000.

(Reuters)