TOKYO - JAPAN'S economy shrank an annualised 3.0 per cent in the second quarter of 2008, worse than a contraction of 2.4 per cent previously thought, a government revision said Friday.

Gross domestic product (GDP) shrank by 0.7 per cent in the three months to June from the previous quarter, the Cabinet Office said. The figure was worse than a contraction of 0.6 per cent initially estimated.

It was the first contraction in one year, raising fears that Asia's biggest economy will slip into recession as exports falter and costs rise for raw materials.

Economists generally consider a recession to be two straight quarters of negative growth.

However, the contraction was not as bad as the market expected. Analysts had anticipated a fall of 3.3 per cent on an annual pace.

The Tokyo Stock Exchange's benchmark index rose more than one percent at the opening bell after the release of the data. Dealers were also upbeat over a rebound on Wall Street, where financial firms have been mired in losses.

Japan's Cabinet Office said that domestic demand was worse in the second quarter than previously expected. It slipped 0.7 per cent from the previous quarter, more severe than the 0.6 per cent earlier estimated.

Private-sector spending on plants and equipment was revised significantly lower to a fall of 0.5 per cent from the previous quarter. Previously, the government estimated it slipped 0.2 per cent.

Exports fell 2.5 per cent in the quarter, worse than the 2.3 per cent that was earlier forecast.

However, the Cabinet Office also said imports shed 2.6 per cent, as opposed to the initial figure of 2.8 per cent. -- AFP