Tokyo, May 29 (Bloomberg) -- Japanese factory production rose less than expected in April as a decline in domestic demand for cell phones and factory equipment spoiled expectations rising exports will be enough to pull the economy out of recession. Stocks fell after a government report said production rose 0.2 percent, seasonally adjusted, in April from the previous month, less than the 0.7 percent gain economists forecast, and down from March's 0.8 percent increase. Japan's strategy of relying on Nissan Motor Co., Rohm Co. and other exporters to carry the economy may falter after the yen rose 7.5 percent the past three months. As demand at home sags, companies aren't expanding or creating the jobs needed to get the economy growing. ``The rise in exports isn't being balanced by rising domestic demand,'' said Shuji Shirota, an economist at Dresdner, Kleinwort Wasserstein. ``That could set up a double-dip recession'' where a period of growth is followed by further contraction. While Japan's economy probably expanded at a 6.8 percent annual pace last quarter, according to the latest Bloomberg News survey -- the first growth in a year, it was driven by exports, which account for just 10 percent of gross domestic economy. Reports yesterday showed U.S. consumer confidence and personal spending rose less than forecast, suggesting economic growth in Japan's biggest export market will slow from the first quarter's 5.6 percent pace.

Stocks, Yen
The main Nikkei 225 stock average fell 0.7 percent, led lower by exporters such as industrial robot maker Fanuc Ltd. and Kyocera Corp. The government last week sold yen for the first time in eight months to shield exporters. The yen was recently trading at 124.63 to the dollar. It rose to a five-month high 123.53 last week before the government started selling. Inventories fell 1.6 percent last month to the lowest in 13 years, today's report showed. Shipments rose 0.8 percent in April from March. The drop in inventories prompted manufacturers to forecast a 5.1 percent increase in production for May, the Ministry of Trade, Economy and Industry report said, though that may not pan out. Companies have overestimated production gains for 22 months -- last month they forecast a 1.3 percent increase for May.

Cell Phones, Computers
Production of semiconductor devices and parts for electronic machinery rose 3.9 percent, leading April's gains. Car production rose 1.1 percent in April from March, today's report showed. Steel production rose 1.9 percent on exports to Asia. Production at Kawasaki Steel Co. and other steelmakers rose 1.4 percent in April from a year earlier, the first gain in 13 months. Against that, cell phone production declined 17.1 percent and personal computer production fell 5.1 percent, limiting the overall gain. NTT DoCoMo Inc., KDDI Corp and Vodafone's J-Phone Co., Japan's three-biggest mobile phone companies, added 41 percent fewer users last month than a year earlier, the ninth straight month of decline. Production of printing presses, chipmaking machinery and other capital equipment dropped 6.5 percent as factories cut spending. ``Unless domestic demand recovers Japan won't have a full-scale recovery,'' said Yukari Sato, a senior economist at J.P. Morgan Securities Asia Ltd. ``The only good news is exports and production, everything else from capital spending to consumer spending is yet to recover.'' Japan's automakers are relying on overseas demand as domestic sales sag. Nissan, Toyota Motor Co., Honda Motor Co. and the next two biggest carmakers shipped 10.3 percent more cars overseas last month than a year earlier, even as they built just 3.9 percent more cars.

World Cup
Manufacturers haven't regained ground lost last year. After three months of gains, production in April had only risen to September's level. From a year ago, production fell 6.1 percent last month. Some companies catering to the domestic market increased output last month. Production of aluminum cans rose 9.9 percent as brewers ordered more to quench the demand of thirsty football fans during the World Cup, which kicks off Friday. Japan expects about 440,000 visitors for the monthlong event, which it is co-hosting with South Korea. Shipments of canned beer at Kirin Brewery Ltd. rose 10 percent in April and May, said spokeswoman Naomi Sasaki, as Japan's second- biggest brewer sold 2.9 million cases of beer in cans featuring World Cup designs -- 3 1/2 times more than company forecasts. ``We hope that will continue through June,'' said Sasaki.