(May 15) (Bloomberg) -- Japanese machinery orders fell more than economists expected in March as a global slowdown and waning profits dissuaded companies from investing in factories and equipment.

Equipment orders, which signal capital spending in the next three to six months, declined 8.3 percent from February, when they fell 12.7 percent, the Cabinet Office said today in Tokyo. The median estimate of 33 economists was for a 5.1 percent drop.

Companies surveyed in today's report forecast that orders in the second quarter will fall 10.3 percent. Toyota Motor Corp. last week said it will cut spending on plant and equipment as falling U.S. sales, higher commodity prices and a stronger yen erode earnings.

``It will definitely deteriorate this quarter,'' Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute. ``Exports are losing momentum and corporate profits are weakening.''

The yen traded at 105.27 against the dollar at 9:59 a.m. in Tokyo from 105.15 before the report. The yield on Japan's benchmark 10-year bond was unchanged at 1.70 percent.

The Cabinet Office downgraded its assessment for orders, saying they are ``showing some weakness,'' a change from previous language that described them as ``seesawing.''

Toyota's Profit

Toyota last week forecast its first profit decline in seven years and said it would cut spending on research and development. The automaker's U.S. sales fell for four consecutive months to March and soaring steel and energy costs, along with the yen's 6.3 percent gain against the dollar this year, have made each sale less profitable.

Goldman Sachs Group Inc. says annual profit at Japanese companies will fall for the first time in seven years.

``Companies are lowering earnings forecasts one after another,'' said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs. ``We expect capital spending -- manufacturing sector machinery investment in particular -- to enter a correction in April-June.''

The central bank's Tankan survey of business confidence last month showed that Toyota isn't alone in trimming spending. Large companies said they plan to cut capital investment by 1.6 percent this fiscal year, the worst projection since the economy emerged from a recession in 2002.

Business Spending

Analysts predict that a 1 percent drop in business spending last quarter was the main reason Japan's expansion slowed in the three months ended March 31. The gross domestic product report, due tomorrow at 8:50 a.m. in Tokyo, will probably show growth slowed to 2.5 percent from 3.5 percent in the fourth quarter, according to surveyed economists.

Still, the declines in machinery orders follow a 19.6 surge in January, the biggest gain in more than seven years and a 2.2 percent increase for the first quarter.

Businesses may keep spending to replenish worn out equipment, according to Yoshihiko Senoo, head of research at the Cabinet Office's Economic Planning Agency. About 60 percent of Japanese businesses said the main reason for capital investment in the year ended March 31 was to upgrade equipment, a government survey of more than 10,000 businesses released in March shows.

``These investments are unavoidable and may keep supporting spending,'' Senoo said before today's report.

Editor: Haijing Qu