(Adds details on GDP, monetary policy)
* Aug household spending +2.9 pct yr/yr vs f'cast +0.4 pct yr/yr
* Spending jumps as consumers buy more cars
* Measure of labour demand hits highest since Jan 1992
By Stanley White
TOKYO, Oct 2 (Reuters) - Japan's household spending rose in August for the first time in three months and the availability of jobs improved to its best in more than two decades, which could temper concerns that the economy has fallen into a recession.
The 2.9 percent annual increase in household spending in August amply exceeded the median estimate for a 0.4 percent year-on-year rise and followed a 0.2 percent annual decline in July as more consumers bought cars.
A separate survey from the Bank of Japan showed corporate inflation expectations weakened slightly last quarter, which could bolster the argument that the central bank will ease monetary policy at the end of this month when it updates its long-term economic forecasts.
"Household spending and the tight labour market are a positive sign that the economy is chugging along," said Norio Miyagawa, senior economist at Mizuho Securities.
"I don't expect the BOJ ease when it meets next week. The BOJ is likely to lower its consumer price forecasts at the end of the month, so it faces a test of credibility if it doesn't ease policy then."
The gains in auto sales are particularly encouraging, because it suggests this category has finally recovered from a tax increase that triggered a slump in compact car sales, Miyagawa noted.
In addition to higher car sales, many consumers bought new domestic air conditioners during a spell of unusually hot weather, a government official said.
Government data showed the jobs-applicants ratio rose to 1.23 in August, which is the highest since January 1992. The jobless rate was 3.4 percent in August, slightly more than the median estimate of 3.3 percent.
An unexpected decline in August industrial production earlier this week led some economists to say the economy may have contracted in July-September, which would put it in a technical recession after a contraction in April-June.
However, strong household spending data, which the government uses to calculate gross domestic product, has led some economists to become more optimistic.
"My perception of consumer spending has changed and I think we can avoid a recession," said Hiroaki Muto, economist at Tokai Tokyo Research Center Co.
"Exports and output may be bad, but domestic demand is doing much better than I expected."
The BOJ will hold a two-day meeting on Oct. 6-7, but many economists are focused on the following meeting on Oct. 30, where the central bank will recalculate its consumer price and gross domestic product forecasts.