* Exports rise in April from March; annual drop slows
* Shipments to China, U.S. fall at slower annual pace
By Stanley White
TOKYO, May 27 (Reuters) - Japan's exports showed modest signs of recovery in April with shipments to China declining at a slower pace than a year earlier, suggesting that while the worst of the global slump in trade may be over most of the pickup is from stimulus spending.
Exports rose for a second month in April compared to the previous month, seasonally adjusted government data showed on Wednesday, an encouraging sign as Japan's economy recovers from its worst ever contraction, although it remains to be seen how sustainable the recovery is.
Shipments to China, Japan's biggest trade partner, fell 25.8 percent in April from a year earlier, narrowing the margin of annual decline for a third straight month and showing that Beijing's $585 billion stimulus package is helping slow the pace of decline in shipments of Japanese cars and consumer electronics.
The data also showed that Japanese exports of machinery fell at a faster pace, suggesting the absence of a rise in final demand that would prompt China's factories to gear up.
"The improvement in exports reflects companies restocking inventories on expectations of an economic recovery," said Satoru Ogasawara, an economist at Credit Suisse in Tokyo.
"Sentiment is improving in many countries, but so far the hard data hasn't really picked up. This may not be the real recovery yet."
Overall Japanese exports fell 39.1 percent in April from a year earlier, less than the median market forecast for a 41.9 percent fall. On a seasonally adjusted basis, exports rose 1.9 percent in April from March.
According to separate data from the Bank of Japan released on Wednesday, seasonally adjusted exports rose 7.8 percent in April from the previous month, the biggest gain in 14 years.
The pace of annual declines in exports of cars and electronic parts is slowing overall, showing that trade is improving, a Ministry of Finance official told reporters at a briefing.
Exports to China of mobile phones rose 14.3 percent in April from a year earlier as China's stimulus package filtered through the economy. Car exports to China fell 46.7 percent in April from the previous year, also slower than last month's 54.5 percent decline. However, machinery shipments posted a 36.0 percent annual slump in April, faster than a 30 percent annual decline in March.
READY TO RAISE OUTPUT
Japanese manufacturers are turning more positive and have shown signs they are ready to increase production after a collapse in global trade last year forced them to slash output.
The performance of Japan's Canon Inc was better than expected in March and April as stimulus measures around the world start to work, CEO Fujio Mitarai said on Monday.
"In China and some other parts of Asia, we even achieved year-on-year growth," said Mitarai, head of the world's largest digital camera maker.
Sentiment has also begun to turn around in Japan's largest Western markets. U.S. consumer confidence soared in May to the highest level in eight months as an improving labour market made people more optimistic about buying cars, data showed on Tuesday. In Germany, the Ifo business sentiment survey rose in April in a sign a record slump in exports and investment is easing.
Still, some analysts were cautious on whether global demand will recover enough to prompt Japanese companies to go beyond restocking after a heavy run-down of inventories.
"China's economy is doing better than other countries mostly because of government spending," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But like Japan, China's economy is driven mostly by exports, so unless we see a stable pickup in global demand its recovery will be limited. That bodes ill for Japanese companies."
Japanese exports to the United States fell 46.3 percent in April from a year earlier, smaller than a 51.4 percent drop in March, although automobile shipments continued to fall sharply, dropping 70.0 percent from a year earlier.
The trade balance logged a surplus of 69.0 billion yen ($729 million), higher than the median estimate for a 57.5 billion yen shortfall.
The Nikkei share average gained 1.4 percent on Wednesday, tracking the previous day's jump on Wall Street due to gains in U.S. consumer confidence.
Blue-chip exporters such as Sony Corp were buoyed as the dollar edged further above 95 yen, a level many exporters have based their earnings forecasts on for the financial year to next March.
Japan's government raised its assessment of the economy for the first time in three years on Monday, saying the pace of deterioration in exports and industrial production is slowing.
The government joined the Bank of Japan, which also upgraded its view of the economy this month for the first time in almost three years.
Japan's economy shrank at a record 4.0 percent in the first quarter as domestic demand and investment buckled, and some economists say a recovery depends on whether final demand picks up overseas. ($1=94.70 Yen) (Editing by Michael Watson)