Capital investment by Japanese companies excluding the financial and insurance sectors rose a record 16.8 percent in the October-December quarter from the same period a year earlier, the Finance Ministry said Monday, signaling the corporate-led economic expansion remains strong.

It is the sharpest increase since the government started to calculate the figure in July-September 2002 and the 15th straight quarterly rise, the ministry said.

The latest figure shows that capital investment, along with exports, is a driving force of the economy, and it helps validate the Bank of Japan's interest rate hike last month to 0.5 percent from 0.25 percent, analysts said.

"The data were stronger than market expectations. Capital investment will probably lead the government to revise up the overall GDP figure," Hiroshi Shiraishi, an economist at Lehman Brothers Japan Inc., said in a report dated Monday.

In its preliminary GDP figure released last month, the economy expanded 1.2 percent in real terms in the October-December quarter, or at an annualized rate of 4.8 percent. According to that GDP data, capital spending was up 2.2 percent from the previous quarter.

The Cabinet Office will announce the revised GDP data March 12.

In the latest corporate capital spending report, manufacturers' spending on plants and equipment rose 15.4 percent, up for the 15th straight quarter, on the back of robust capital spending by the steel sector for automobiles and shipbuilding.

However, capital expenditures by the transport machinery sector dropped 4.4 percent, marking the second consecutive decline. "The automobile sector contributed to the decline of the transport machinery's 'capex,' " a governmental official said, adding that domestic auto sales have stalled.

Nonmanufacturers' capital spending rose 15.4 percent, up for the 13th consecutive quarter.

The combined pretax profit at corporations rose 8.3 percent from a year before, a smaller increase from a 15.5 percent rise in the previous quarter.

"Capital investment and exports will lead the economic recovery this year, but a corporations-led economic recovery is still a cause for concern," Shiraishi said, noting that weaker growth in pretax profits from the previous quarter was caused by surging materials costs for small and midsize companies, and declining sales at big companies.

The government official said capital spending for the quarter was led by small and midsize companies, which have finally jumped on the recovery. But Shiraishi cautioned that the samples may be biased.

The Finance Ministry sent poll questions to 24,587 random companies capitalized at 10 million yen or more, and received replies from 19,319.