Companies slashed their investment in new factories and equipment by 13 per cent in the third quarter, the sharpest drop since comparable records began in 2002, according to a finance ministry survey of about 25,000 firms.

Pretax profits tumbled 22.5 per cent in the three months to September from a year earlier, the sharpest fall since the fourth quarter of 2001. Corporate sales dropped 0.2 per cent.

The grim figures sparked concern that a final estimate of Japan's third quarter gross domestic product due next week will show an even bigger contraction than the 0.1 per cent drop announced last month.

'The data confirmed anew that Japan is in a recession and that the extent of the downturn is more serious than generally thought,' Mr Toshihiro Nagahama, a senior economist at Dai-Ichi Life Research Institute, told Dow Jones Newswires.

'The state of the economy could get worse in coming quarters. That's because the global financial crisis became full-blown in October, sending advanced economies' stock markets tumbling.'

Japan confirmed last month that it had entered a recession for the first time in seven years, dragged down by weak exports and lower business investment.

Recent data have suggested that Japan's export-dependent economy sank deeper into recession in October as factory output and consumer spending tumbled. -- AFP