UPDATE 2-Japan firms' mood may sour faster than tankan showed

(For more stories on the Japanese economy click [ID:nECONJP]) (For tankan table click [ID:nT78068]) (Adds details, economist comments)

By Shigeo Kodama and Tetsushi Kajimoto

TOKYO, July 17 (Reuters) - Confidence among Japanese manufacturers' sank to a fresh five-year low in July and may be crumbling faster than the central bank forecast in its tankan corporate survey two weeks ago, a Reuters poll showed.

Surging oil and commodity costs squeezed factory profits as Western export markets slowed, consumers shrank from stores at home, and China looked set to lose steam, according to the Reuters Tankan, which tracks the central bank's tankan gauge.

The manufacturers index of the Reuters Tankan survey, a monthly poll of Japanese companies, tumbled to minus 10 in July from minus 2 in June.

The Bank of Japan's closely watched quarterly tankan survey also showed confidence falling to a five-year low in the second quarter, but it produced a stronger reading than analysts had forecast. Companies in the BOJ survey said they expected the mood to sour only slightly over the three months to Sept. 30.

"Looking at the Reuters Tankan, the BOJ tankan seemed somewhat optimistic about the outlook," said Yoshimasa Maruyama, an economist at BNP Paribas.

The BOJ slashed its economic growth forecast this week to the slowest pace in six years as energy costs deter consumption and export markets sputter under the strain of a global credit crisis triggered by a meltdown in the U.S. mortgage market.

The Reuters Tankan manufacturers' index is now at its weakest since April 2003 when it was at minus 11. The survey was taken from June 27 to July 14.