By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) - Confidence among Japanese manufacturers rose for a seventh straight month in March to a three-year high, while the service sector's mood held steady, a Reuters poll showed, highlighting an export-led economic recovery.
The Reuters' monthly poll - which tracks the Bank of Japan's key quarterly tankan - found confidence at both manufacturers and service-sector firms up from three months ago, pointing to an improvement in the central bank's survey due April 3.
In the poll of 531 large- and mid-sized firms, conducted between March 7-21 in which 254 responded, the sentiment index for manufacturers rose to 25 from 20 in February, led by materials firms such as oil refinery/ceramics, textiles/paper and steel/nonferrous metals.
It was the highest reading since April 2014, but is expected to drop to 23 in June. Compared with three months ago, the sentiment index was up nine points.
The Reuters Tankan comes as Japan's long-stagnant economy shows signs of life, with exports and factory output benefiting from a global economic recovery, although consumer spending has remained sluggish.
Exports grew the most in more than two years in February even as a widening trade surplus with the United States potentially raises tensions in the face of rising U.S. protectionism under President Donald Trump.
"Exchange rates are stable at around 115 yen, providing a good environment for our clients, many of whom are exporters," a manager at a nonferrous metals producer wrote in the survey, which companies answer anonymously.
Manufacturers cited stability in exchange rates, brisk demand for smartphones, and a pick-up in demand from China as factors underpinning their sentiment.
Some companies were concerned about uncertainty over the outlook for global economy, while others complained about sluggishness in private consumption that constitutes about 60 percent of Japan's economy, the world's third largest.
The Reuters Tankan service-sector index held steady at 26 in March, with retailers and wholesalers rebounding from the previous month's slump.
It was seen slipping to 24 in June. Compared with three months ago, the sentiment index was up seven points.
The central bank's last tankan in December showed sentiment among big Japanese manufacturers improved for the first time in six quarters to hit a one-year high, as a weak yen and a pick-up in global demand brightened prospects for exporters.
The Reuters Tankan's sentiment indexes subtract the percentage of companies saying conditions are poor from those saying conditions are good. A positive number means optimists outnumber pessimists.
(Click here for a graphic on 'Japan big manufacturers' sentiment' http://fingfx.thomsonreuters.com/gfx/rngs/1/1941/3644/index.html)