TOKYO, Japan?Japan held onto its position as the world's second biggest economy ahead of surging China in the first half of 2010, a government official said Monday, after data showed growth sharply slowed in April-June.

On a nominal basis, Japan's gross domestic product was at 2.578 trillion dollars compared to China's 2.532 trillion dollars in the first half, the cabinet office said in a preliminary estimate.

However, the data pointed toward the looming prospect of China overtaking Japan as the world's second-largest economy, underlining its growing global clout after becoming the world's biggest exporter, auto market, and steelmaker.

Japan's second quarter GDP was smaller than China's at 1.288 trillion dollars compared with 1.336 trillion dollars, according to the government.

Deflation and weak domestic demand have long burdened Japan, as consumers tend to put off purchases in the hope of further price falls, while global economic weakness has also hit the exports that have driven Japan's recovery.

"In the future, we expect the Japanese economy to fall into lull, as exports continue to weaken," said Hiroshi Watanabe, senior economist at Daiwa Research Institute.

"The economy is likely to slow through the early part of 2011."

In June, Japan's unemployment rate edged higher to 5.3 percent, while production of automobiles and electronic gadgets underwent a surprise slip, amid signs that an export-driven recovery may be stalling.

Shipments of cars, gadgets, and components have been crucial in offsetting weaker demand at home, but concern is mounting that Japan may be hit by Beijing's efforts to cool China's economy, together with fragile eurozone and US demand.