TOKYO - Japanese manufacturing sentiment worsened in October for the first time since the aftermath of the March earthquake and faltering global growth combined with a strong yen is expected to dampen it further, a Reuters poll showed on Thursday.

The monthly poll, which is highly correlated with the Bank of Japan's closely watched quarterly tankan corporate survey, added to growing evidence that the economy's quick rebound from the devastating earthquake and tsunami in March is losing momentum.

The central bank has kept its policy unchanged since it boosted its asset buying scheme in August, but has been flagging heightened risks stemming from Europe's sovereign debt woes and global economic slowdown.

"Many members said that the risk of the sovereign debt problems in Europe putting downward pressure on overseas economies, and consequently on Japan, was increasing," the central bank said in minutes of its Sept. 6-7 meeting released on Thursday.

Still, at its last meeting on Oct. 6-7,the BOJ stood by its view that the world's No. 3 economy will recover moderately, largely supported by rebuilding from the March?disaster.

The bank has also predicted that car exports will keep rising as automakers restock depleted inventories overseas.

The Reuters poll showed automakers were most bullish, although recent heavy flooding in Thailand has clouded the outlook after Honda Motor Co and others reported damage to plants or supply snags.

The Reuters Tankan showed the manufacturing sentiment index, derived by subtracting the percentage of pessimistic responses from optimistic ones, fell two points from September to plus 6, the first drop since it plunged by a record in April after the March 11 disaster.

The index is seen sliding further to plus 4 in January, dragged down by sectors such as electric machinery and transport equipment.

"The pace of recovery has slowed down after a sharp rebound following the earthquake, with factory output and exports showing similar movement. Worries on global economy and a strong yen probably affected the confidence," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"I see the recovery trend has not changed at the moment. But if a deterioration in the business sentiment is to continue in the next few months, this view may be changed."

The survey is closely correlated with broad growth trends in the Japanese economy and the central bank uses it as a key gauge guiding its monetary policy.

The Reuters survey follows a surprisingly strong core machinery orders report for August, but Wednesday's data failed to dispel concerns about the economy's prospects. ?

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