Japanese manufacturers' business sentiment improved slightly in the three months to March, the Bank of Japan's closely watched tankan survey showed, but analysts anticipate a downturn in confidence this quarter following last month's devastating earthquake and tsunami and subsequent nuclear crisis.

The headline index for big manufacturers' sentiment was plus 6 in March, the survey showed on Friday, improving from plus 5 in December and against the median market forecast of plus 7.

But the survey did not fully reflect the impact of the magnitude 9.0 earthquake and tsunami that flattened coastal towns and cities in the country's northeast, killed more than 11,000 and triggered the world's worst atomic crisis in 25 years, because the BOJ had collected most firms' responses before the quake.

The index for June was seen at plus 2, showing that companies expect business conditions to worsen over the next three months.

The survey also showed that big firms plan to cut their capital spending by 0.4 percent in the financial year to next March, compared with the market's median forecast for a 1.8 percent increase.

The sentiment indexes are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. Negative readings mean pessimists outnumber optimists.

(Reporting by Rie Ishiguro, Leika Kihara; Editing by Chris Gallagher)

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