UPDATE 2-Japan exports post first fall in 4 months as Europe, China slow

* June exports -2.3 pct y/y vs forecast -3.0 pct

* Trade balance +61.7 bln yen vs -135.0 bln yen f'cast

* Exports to Europe fall at fastest pace in almost 3 yrs

By Stanley White

TOKYO, July 25 (Reuters) - Japan's exports fell in June from

a year earlier, the first decline in four months, as a slowdown

in Europe, China and other emerging markets weighed on demand

for Japanese goods.

The 2.3 percent annual decline in exports was slightly less

than economists' median forecast of a 3.0 percent annual drop,

in a troubling sign for Japan's recovery from a devastating

earthquake, tsunami and nuclear disaster last year.

Japan's domestic demand, fueled by reconstruction and a

pick-up in consumer spending, has supported growth for much of

this year but weakening overseas demand could slow the economy,

bolstering the case for new policy steps to support growth.

"Exports remain sluggish and you can't expect much from

external demand to drive the Japanese economy in the latter half

of this fiscal year (to next March) when private consumption is

likely to lose momentum as subsidies for low-emission cars run

out of money," said Yasuo Yamamoto, a senior economist at Mizuho

Research Institute.

"I don't think the Japanese economy is sliding back into

recession, but that possibility cannot be totally ruled out

depending on developments in Europe's crisis and slowdown in the

U.S. and Chinese economy," he said.

The trade balance in June swung to a surplus of 61.7 billion

yen ($788.80 million) against a projected deficit of 135.0

billion yen as imports fell an annual 2.2 percent due to a

decline in oil prices.

The decline in imports was the first in 2-1/2 years and

compares with the median forecast for a 1.2 percent annual

increase.

Japan recorded its biggest ever trade deficit of 1.481

trillion yen in January.

Exports to Europe in June tumbled by 21.3 percent from a

year earlier, the fastest decline since a 29.0 fall in the year

to October 2009 as Europe's sovereign debt crisis takes its

toll.

Exports to China, Japan's largest trading partner, fell 7.3

percent in the year to June, the biggest decline since a 14.0

percent annual fall in February, due to lower shipments of steel

and heavy machinery.

Japan's economy is still expected to outperform most other

developed nations this year thanks to solid domestic demand, but

analysts have slashed forecasts for factory output as the global

slowdown becomes more pronounced, according to a Reuters poll

conducted earlier this month.

Japan's economy, the world's third-largest, is set to grow

2.2 percent in the year to next March, according to a Reuters

poll of economists, slightly slower than the 2.3 percent pace

seen in a similar survey in June.

China's economy is expected to recover modestly in the third

quarter after marking its slowest pace of growth in three years

in the second quarter as Europe's sovereign debt crisis weighed

on exports.

There are growing worries that Spain may have to seek a

bailout following media reports that half a dozen regional

governments could request state aid to pay off their debts.

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