There are concerns that a US slowdown will hit Japanese exports

The size of the growth surprised analysts, who had been expecting a growth rate of about 1.4%.

However, there are warnings that a slowdown in the US - Japan's key export market - will dent 2008 growth.

The better-than-expected growth figure boosted Japanese shares, with the Nikkei 225 index closing up 4.3%.

"Amid the recent slack economic data and fears of a recession, today's GDP data helped ease worries," said the head of the equity department of Daiwa Securities, Kazuhiro Takahashi.

Despite the growth, the Bank of Japan is widely expected to keep interest rates on hold at 0.5% on Friday, with rates forecast to be pegged, or possibly cut, during 2008.

The Cabinet Office figures showed that, compared with the previous quarter, the economy grew by 0.9% between October and December.

A 2.9% rise in business investment during the quarter, after a 1.1% increase between in July and September, was one of the main reasons for the growth, analysts said.