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UPDATE 1-Morale in Japan's service sector drops fastest in a year over pandemic

·2 min read

(Recasts, adds detail, analyst comment)

* April 'economy watchers' index 39.1 vs 49.0 in March

* Prolonged COVID-19 crisis, new curbs hurt service sector, consumption

* Gov't cuts view on service index, weakness seen in pick-up

By Tetsushi Kajimoto

TOKYO, May 13 (Reuters) - Japan's service sector confidence fell at the sharpest pace in a year in April, a Cabinet Office survey showed on Thursday, as curbs aimed at containing a resurgence of COVID-19 infections depressed consumer spending.

Japan put in place a third state of emergency in Tokyo and some other areas late last month and has extended the measures until the end of May as the country struggles to contain a fourth wave of infections.

Analysts expect gross domestic product data due next Tuesday to show the world's third largest economy shrank in January-March as the curbs hit face-to-face service activity hard.

As private consumption accounts for more than half of the economy, the outlook for the current quarter appears dark as well.

"Household sentiment turned out particularly weak as more and more people have refrained from unnecessary outings and shopping," said Masaki Kuwahara, senior economist at Nomura Securities.

Thursday's survey of workers such as taxi drivers, hotel workers and restaurant staff - called the "economy watchers" index for their proximity to consumer and retail trends - showed their confidence about current economic conditions fell 9.9 points from the previous month to 39.1 in April.

It was the first decline in three months.

All the component indexes measuring sentiment at households, businesses and employment worsened, the survey showed.

The Cabinet Office cut its view on the survey for the first time in three months, saying that the economy remains severe due to the pandemic and a pick-up will be weak. As for the outlook, it said anxiety is mounting over virus developments.

A year ago the index plunged to 7.9, the lowest level since the survey began in 2000, as the economy took a hard hit from the first wave of the pandemic and suffered its worst post-war slump.

The outlook index, indicating the level of confidence in future conditions, fell 8.1 points to 41.7 in April, down for a second straight month.

"Given the latest emergency, private consumption will likely remain stagnant in May as well," Nomura's Kuwahara said. (Reporting by Tetsushi Kajimoto; additional reporting by Kaori Kaneko; Editing by Kim Coghill)