By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) - Confidence among Japanese manufacturers rebounded in October to match a peak last seen in mid-2007, a Reuters poll found, further evidence that the economic recovery is gathering momentum helped by a weak yen and strong overseas demand.
The monthly poll followed an Oct. 2 Bank of Japan survey that showed big manufacturers were the most optimistic about the business outlook in a decade.
The survey results are an encouraging sign for Prime Minister Shinzo Abe ahead of an Oct. 22 lower house election as he hopes to convince voters his reflationary policies are helping to sustain a private sector-led recovery.
The Reuters Tankan service-sector sentiment index slipped from the previous month's two-year high but remained relatively high.
"Global car sales have been performing well," a manager of a transport equipment maker wrote in the survey, in which companies respond anonymously.
An electrical machinery maker said: "Currency fluctuations have been small and orders have been steady."
The poll of 548 large- and mid-sized companies was conducted Sept. 28 to Oct. 12, in which 254 firms responded.
The sentiment index for manufacturers rose six points in October to 31, driven by producers of electrical machinery, metal products and other machinery, and oil refiners. The index matched a high last seen in June 2007.
Service-sector sentiment fell to 30 from the previous month's two year-high of 34, dragged down by retailers. That could be a concern for private consumption, which constitutes some 60 percent of the economy.
The manufacturers' and service-sector indexes were expected to fall to 24 and 28 respectively in January, reflecting concerns about North Korea, the outlook for the Chinese and U.S. economies, and Japan's domestic politics.
Business sentiment will be among indicators the BOJ board will scrutinise when it issues fresh long-term economic and price forecasts at a rate review on Oct. 30-31.
BOJ policymakers hope a sustained economic recovery will boost wages and consumer spending, but analysts expect inflation to remain some way off the central bank's 2 percent target.
(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)
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