New figures show Japan's economy was surprisingly strong in the June quarter, helped by more business investment and higher private spending.

Figures for gross domestic product (GDP) released by the government on Tuesday morning reinforce the view that a recovery in the world's second largest economy may be on firmer ground.

GDP grew by 0.6 percent in the three months to June 30 over the previous quarter, with growth on an annualized basis of 2.3 percent.

It was the sixth straight quarter of growth and well above a median forecast of 0.2 percent in a poll by Reuters news agency.

Net foreign demand added 0.2 percentage points to growth and domestic demand added 0.4 percentage points.

Consumer spending, which accounts for about 55 percent of the economy rose 0.3 percent, against poll expectations of a 0.1 percent fall.

Spending by Japanese businesses rose 1.3 percent in the quarter, above the poll forecast of 0.7 percent.

Stocks moved higher after the figures were released, with the Nikkei 225 average about 0.4 percent higher at 9527.76 in early trade.

On the currency front, the dollar slipped to 118.40 yen compared with 118.50 yen before the data.

The GDP figures confirm the recent brighter trend in Japan's economy that has seen business investment and sentiment pick up and stock prices rise. That in turn has prompted the government and the central bank to raise their assessments of economic conditions.

The forecast for 2003 now ranges from growth of 0.4 percent to 1.7 percent.

"It's definitely positive news and suggests that the expansion is continuing, and if anything things might pick up a bit more in the second half of this year," Peter Morgan, chief economist at HSBC Securities, told Reuters news agency.

But a note of caution still prevails.

UBS Japan chief economist Hiromichi Shirakawa told CNN that imports were weaker than expected, the domestic economy was not so strong and the overall quality of growth in the second quarter was "not so good".

While consumption in June was fairly strong, Shirakawa said there was no major improvement in labor market conditions.

Hlowever late last month, the government released figures showing more Japanese found work in June and the jobless rate fell to 5.3 percent, its first improvement in three months.

Shirakawa predicted Prime Minister Junichiro Koizumi would stick to a policy of slow reform of the corporate and banking sectors.

Koizumi is facing an election for leadership of the ruling coalition in September, and his management of the economy is a key issue.