Japan's key gauge of corporate capital spending rose at its fastest pace in nearly four years in November, thanks partly to post-quake rebuilding demand, but policymakers were kept on guard over the potential fallout from the euro zone debt crisis.

Policy chiefs reiterated their concerns about Europe's sovereign debt crisis as Asian share prices and the euro fell on Monday after Standard & Poor's mass downgrade of euro zone countries late last week.

Finance Minister Jun Azumi said he is worried about the euro's fall as the common currency hit a fresh 11-year low of 97.04 yen at one point on trading platform EBS.

I am worried because currency moves have been a little rapid, Azumi told reporters.

Unless Europe builds a strong firewall and provides a sense of security to markets and the world, (the euro zone crisis) would become a worrying factor for global growth this year.

The continent suffered another setback in its battle to contain the crisis last week when S&P on Friday cut credit ratings of nine euro zone economies, stripping France and Austria of their coveted triple-A status.

The news cast a pall over a surprise 14.8 percent jump in Japan's core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months. The monthly rise easily beat economists' median forecast for a 6.0 percent increase.

The data are a sign that Japan was able to quickly shake off the impact of floods in Thailand's industrial base. Private consumption has held firm with consumer confidence improving in December from the previous month.

Economists, however, expect spending to slow again in months ahead as a global slowdown, the fallout from the euro zone debt debacle and the yen's persistent strength dampen the initially brisk recovery from the devastating March 11 earthquake.

Capital expenditure is still recovering. But the outlook is uncertain due to Europe, which could easily encourage companies to delay capital expenditure, said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

REGIONAL JAPAN FEELING THE PINCH

Bank of Japan Governor Masaaki Shirakawa on Monday singled out a possible fallout from Europe's two-year-old debt crisis as the biggest risk facing the world's third-largest economy, although he gave assurances that Japanese banks are having no trouble raising funds.

Europe's sovereign debt problem remains the biggest risk. This problem may hurt not just Europe's economy but the global economy as a whole through financial market moves, he told a quarterly meeting of the BOJ's regional branch managers.

The BOJ cut its assessment for seven of nine regions from three months before, including the Tokai central Japan region -- home to auto giant Toyota Motor Corp <7203.T> -- and western Japan where some big electronic makers are based.

Hideo Hayakawa, Osaka branch manager, said the economy was stalling in western Japan but Europe's crisis has yet to severely hurt growth with some bright signs in the job market.

Still, overseas economies and exports need to improve for the recovery to pick up pace, he said.

The November machinery order data showed a 6.2 percent rebound in non-manufacturing orders as demand for construction equipment got a lift from reconstruction of the northeast coast.

As automakers and telecommunications equipment makers continued to recover from damage caused by Thai floods, orders from manufacturers rose 4.7 percent in November, with smartphone-related demand also helping the telecom sector.

Weakness in exports and industrial output suggest Japan's economy may have contracted in the fourth quarter following a brisk rebound in the previous quarter as companies mend supply chains ripped apart by the March earthquake.

But many economists see a gradual recovery in corporate capital spending later this year as rebuilding shifts into high gear thanks to the government's plan to spend 18 trillion yen (153.10 billion pound) in the near term.

The BOJ predicts the economy will stall for now but resume a moderate recovery later this year on reconstruction spending.

It is likely to lower its growth forecasts for the fiscal year ending in March and the following year but stand pat on policy at a rate review next week unless Europe's debt crisis destabilises markets and sparks a renewed yen spike.

A government survey on private-sector economists showed on Monday Japan's economy is expected to grow 1.89 percent in the year ending in March 2013, lower than the BOJ's forecast last October of a 2.2 percent expansion.

(Additional reporting by Sumio Ito, Shinji Kitamura and Kaori Kaneko; Additional writing by Stanley White; Editing by Tomasz Janowski)