Presenting the latest figures, officials said they were encouraged by the signs of recovery shown towards the end of 2009, particularly since it was the first time in seven quarters that domestic demand has helped to push GDP higher.

Consumer spending, which accounts for about 60 per cent of the economy, rose 0.7 per cent from the previous quarter.

Monday's results indicate that the world's number two economy is continuing to benefit from government stimulus measures around the world, bolstering global trade and persuading Japanese households to increase spending on durable goods.

Exports rise

Japan's Kyodo news agency quoted cabinet official Keisuke Tsumura as saying the data indicates the Japanese economy may now be strong enough to avoid falling back into recession.

Exports in December rose for the first time since last December [EPA]
Robust overseas demand, particularly from neighbouring Asian nations, has also helped lift the Japanese economy.

Exports in December rose for the first time since the collapse of investment bank Lehman Brothers in late 2008, raising Japanese industrial production by 2.2 per cent from the previous month.

The domestic economy, however, remains fragile and could weigh on growth in the coming months as the impact of government stimulus incentives wane.

Rattled by deepening deflation and falling wages, surveys show Japanese businesses remain cautious about spending and hiring.

Other major world economies also face uncertainty ahead.

Latest figures show the US economy expanded at an annual rate of 5.7 per cent in the fourth quarter, but many analysts predict a slowdown this quarter as high numbers of jobless hold back consumer spending.