The Japanese economy expanded for the first time in 18 months between January and March - the first sign that the country's long-running downturn might be coming to an end.

Gross domestic product rose 1.9 per cent between the fourth quarter of 1998 and the first quarter of 1999, an annualised growth rate of 7.9 per cent, the government said.

The markets had expected a quarter-on-quarter rise of only 0.23 per cent. Shares on the Nikkei 225 average rose almost 3 per cent to close at 17,102.62, after the data were leaked in Tokyo.

The strong performance also pushed the yen up by two yen against the dollar to Y117 during Tokyo trading. The Bank of Japan later intervened to halt the rise by buying dollars, showing Japanese officials' concern about the impact of a stronger yen on any economic recovery.

Government officials admitted that the data could still not be taken as concrete proof that Japan's economic problems were over. Mr Taichi Miyazawa, head of Japan's Economic Planning Agency, said the upturn would not "derail" the increasingly fraught debate within the ruling Liberal Democratic Party on the need to produce an additional stimulus package to support growth in the coming months.

Many economists and government officials believe the current upturn has been artificially produced by a burst of public spending.