Japan September flash manufacturing PMI falls to 51.7, output at six-month high

TOKYO, Sept 24 (Reuters) - Japanese manufacturing activity eased slightly in September but output rose at the fastest pace in six months, a preliminary survey showed on Wednesday, suggesting industrial production is stabilising after a sharp slump in demand following a sales tax increase in April.

The Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 51.7 in September from a final reading of 52.2 in August.

The index remained above the 50 threshold that separates expansion from contraction for a fourth straight month.

The figures could ease fears that manufacturers would scale back production as stocks of unsold goods swelled after the tax hike.

The output component of the flash PMI index rose to 53.4 from a final 52.9 in August to reach the highest level in six months.

The index for inventories of finished goods eased slightly to 50.2 from a final 50.9 in August.

The new orders index eased slightly to 52.3 from a final 54.4 in August.

The index for new export orders also fell to a preliminary 52.2 in September from a final reading of 52.8 in the previous month.

Signs of rising factory output could help the economy recover from the shock of the sales tax hike to 8 percent from 5 percent.

The tax increase dampened consumer spending more than many economists expected, triggering a sharp second-quarter contraction, and has taken some steam out of an expected third quarter rebound.

Japan's exports have also struggled to rise as companies shift production overseas, which robs the economy of an important growth engine.

Confidence at Japanese manufacturers fell the most in nearly two years in September, the monthly Reuters Tankan business confidence survey showed last week.

The report raised fresh doubts about the effectiveness of Prime Minister Shinzo Abe's plan to reflate the economy, which hinges on a strong pick-up in both corporate and consumer spending.

The government will analyse data for July-September to decide whether to proceed with a second sales tax hike to 10 percent scheduled for late next year.

The tax increases are needed to pay for rising welfare spending, but some politicians worry they will do too much damage to the economy.

The final Markit/JMMA PMI for September will be released on Oct. 1.

(Reporting by Stanley White; Editing by Kim Coghill; stanley.white@thomsonreuters.com; +81 3 6441 1984 twitter.com/stanleywhite1; Reuters Messaging: stanley.white.reuters.com@reuters.net)