* Big manufacturers' sentiment index -1 vs f'cast -4 * Big non-manufacturers' index +8 vs f'cast +7 * Big firms expect 6.2 pct rise in fiscal 2012/13 capex * BOJ seen holding off on easing on upbeat survey By Leika Kihara and Rie Ishiguro TOKYO, July 2 (Reuters) - Japanese manufacturers' business mood improved for the first time in three quarters and service-sector sentiment hit a four-year high, the central bank's tankan survey for June showed, underscoring a view that the world's third largest economy is headed for a recovery. Big manufacturers expect conditions to improve in the next three months and plan increases in capital expenditure in the current fiscal year to March 2013, the closely watched quarterly survey showed on Monday, a sign that rebuilding from last year's earthquake offset some of the pain from a strong yen and slowing overseas growth. The upbeat results in the tankan, which reflects broad trends in the economy, will likely allow the Bank of Japan to hold off on easing monetary policy next week, analysts said. "Big companies are benefiting from relatively firm overseas economies and post-quake reconstruction demand at home even though strength in the yen remains a concern," said Tatsushi Shikano, senior economist at Mitsubishi UFG Morgan Stanley Securities in Tokyo. "The tankan confirmed the economy is moving in line with the BOJ's forecasts and it is unlikely to prompt the bank to ease policy further anytime soon. I expect the BOJ to stand pat at this month's review, unless a sudden spike in the yen threatens to hurt corporate sentiment." The headline sentiment index for big manufacturers improved three points to minus 1 in June, better than the median market forecast of minus 4 and marking the first recovery in three quarters, the tankan survey found. Service-sector sentiment improved for the fourth straight quarter to hit a four-year high of plus 8, as companies benefited from solid private consumption and spending for rebuilding from last year's earthquake. In a sign that resilience in domestic demand may be sustained, big firms plan to raise their capital spending by 6.2 percent in the financial year that ends in March 2013, more than the median forecast in a Reuters poll for a 3.5 percent increase. Japan's economy is expected to outperform most of its G7 peers this year with growth of around 2 percent, helped by earthquake reconstruction spending, with some central bankers expecting to see a rebound in the autumn. But the stubbornly strong yen, Europe's continuing debt woes and slowing growth in emerging economies are clouding the outlook for the export-reliant economy. The tankan will be closely scrutinised when Bank of Japan policymakers meet on July 11-12 to issue revised quarterly growth forecasts and debate whether the economy needs further monetary stimulus. Some analysts believe the central bank may ease monetary policy again to show its determination to beat deflation. While the BOJ has signalled it is ready to act again, many in the bank prefer to stand pat for now unless a yen spike or renewed market turmoil triggered by Europe's crisis threaten to derail Japan's recovery prospects. The June tankan, compiled between May 29 and June 29, showed big manufacturers revised up their dollar/yen estimates for the current fiscal year, ending in March 2013, to 78.95 yen from 78.14 yen in the previous survey, a sign the pain from the strong yen may be easing. Some analysts, however, warn that Japan's economic recovery will be vulnerable to external shocks, such as a yen spike and slowing growth in big export markets like China, given that the boost from rebuilding for last year's earthquake is expected to fade toward the end of this year. "Companies have not changed their dollar-yen rate assumptions much but they have revised up their capital spending and profit forecasts. This shows business confidence is on an uptrend," said Naoki Iizuka, senior economist at Mizuho Securities in Tokyo. "The BOJ may nevertheless be prompted to act this month as the European Central Bank is likely to loosen policy this week and the Federal Reserve has hinted at further easing." The BOJ set an 1 percent inflation target and eased policy in February, and followed up with another monetary stimulus in April to show its determination to beat deflation. The tankan's sentiment indexes are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means pessimists outnumbered optimists.