Japan Aug leading index falls on subprime woes

TOKYO, Oct 5 (Reuters) Japan's key index for gauging the economic outlook fell in August, dragged down by market-related indicators that declined due to the upheaval triggered by U.S. subprime mortgage problems.

The diffusion index of leading economic indicators dropped to a preliminary 30.0 in August from 72.7 in July, falling below 50 for the first time in three months, data from the Cabinet Office showed on Friday.

A reading below 50, if sustained for a while, suggests an economic contraction on the horizon.

The leading index is compiled using data such as the number of new job offers, consumer sentiment and Tokyo share prices.

''The leading index fell below 50 as subprime problems pushed down market-related indicators,'' a Cabinet Office official told reporters after the data.

''It is a warning sign that they (the subprime mortgage woes) could have an impact on the real economy,'' he added.

Earlier in the day, Economics Minister Hiroko Ota said Japan's economy remains on track for a recovery, but it could face downward risks if subprime mortgage problems affect the U.S. real economy.

''There is a possibility that (the subprime problems) could affect U.S. consumption and cause concerns about employment,'' Ota told a news conference.

Despite worries about the economic outlook, the world's second-largest economy is still healthy.

The coincident index, which gauges current economic conditions, suggests that the economy is still enjoying its longest expansionary cycle in the post-war era, which started in early 2002, the official said.

The coincident index rose to 83.3 in August from 70.0 the previous month, and indicators that are used to compile the coincident index, such as industrial production, shipments and industrial power consumption, hit record highs in August.

The Cabinet Office revises the indexes several times before issuing final figures. Details were as follows: AUG JULY JUNE ------------------------------------------------- Leading Index 30.0 72.7 75.0 Coincident Index 83.3 70.0 81.8 Lagging Index 25.0 60.0 50.0 ------------------------------------------------- Source: The Cabinet Office To view the full tables, go to the official home page of the Cabinet Office at http://www.esri.cao.go.jp/en/stat/di/di-e.html or http://www.esri.cao.go.jp/en/stat/menu.html For stories on Japan's leading indicator index, click on [JPLEAD=ECI] [JPRLEA=ECI] REUTERS KR ND1716