Japan enjoyed better-than-expected growth in retailing and financial services in May, raising hopes that the country has beaten recession.

Prime Minister Junichiro Koizumi's popularity has also picked up, heading back towards the 50% mark, a weekend poll suggests.

Voters appear to have warmed to the prime minister's commitment - set out on Friday - to reform the economy and cut wasteful public works spending, the Asahi Shimbun newspaper found.

And the Bank of Japan's governor has said the economy's turnaround would get stronger but warned that Japan remains at risk from panic-stricken global stock markets.

'Spreading recovery'

Economic activity in the services sector - which includes retailing and financial services - grew 1% in May, the latest official figures showed.

"This is one of the first bright signs that the recovery is spreading beyond manufactures," said Masaki Kuwahara, an economist at Nomura Research Institute.

The rise outpaced economists' expectations of a 0.6% gain on the previous month.

Japan's government has repeatedly urged shoppers to spend. For months, it got no response.

Growth in the domestic retail sector now is likely to be particularly welcome at a time when the US' stock market turmoil is indirectly threatening Japan's exports, by weakening the dollar.

As the dollar sinks, the stronger yen makes Japan's exports more expensive.

Shaky stocks

Nor are Japanese stocks immune from the panic in global markets.

Tokyo's benchmark Nikkei index dropped below the 10,000 mark for the first time in five months on Monday.

However, it later recovered, and analysts say foreign investors are beginning to see Japanese stocks as good value again.

Mr Koizumi got a 47% approval rating in the weekend poll, up 10% from his dismal showing in June.

However, his popularity remains well behind the near-90% voter approval he enjoyed when he took office last year.

"The Japanese economy's trend of bottoming out will become more clear," Bank of Japan governor Masuru Hayami told a quarterly meeting of branch managers.

""But we must heed developments in the world economy, including the US, as well as in foreign exchange and other financial and capital markets."