(Updates with economist's comment in the fourth paragraph.)

May 16 (Bloomberg) -- Japan's machinery orders unexpectedly rose even after factory shutdowns, power shortages and supply- chain disruptions caused by a record earthquake and tsunami.

Factory orders rose 2.9 percent in March from February, when they dropped a revised 1.9 percent, the Cabinet Office said today in Tokyo. Orders, an indicator of capital spending in three to six months, were projected to fall 10 percent, according to the median forecast of 24 economists surveyed by Bloomberg News.

The report bolsters the view that the world's third-biggest economy will regain momentum after the disaster that left more than 24,000 dead or missing and caused a nuclear radiation crisis. Earnings of Nissan Motor Co. beat analysts' estimates and Toyota Motor Corp. said its global production will recover earlier than projected.

"The level of economic activity may already be on the mend," Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo, said before the report. "With the outlook for power supply this summer so much better than before, it now seems likely that the economy will continue trending higher."

The government is asking companies and households to restrict power use by 15 percent this summer, less than its earlier prediction that savings of at least 20 percent would be necessary. Tokyo Electric Power Co. said on May 13 it plans to raise its power capacity to 56.2 million kilowatts by the end of August, 94 percent of last summer's peak.

Increase Output

A government report showed last month that companies plan to increase factory output 3.9 percent in April and 2.7 percent in May, after a record decline in March.

Japan's economy probably contracted at an annual 2 percent pace in the three months ended March 31, according to the median estimate of 22 economists surveyed by the Bloomberg News. That would be the first time the economy shrank for two straight quarters since the global financial crisis. The report will be released May 19.

Gross domestic product will probably increase from the third quarter, BNP's Shiraishi said.

Nissan's net income was 30.8 billion yen ($380 million) for the three months ended March 31, beating the 23 billion yen average of five analysts' estimates compiled by Bloomberg. Nikon, a Japanese maker of cameras, lenses and scanners, reported annual operating profit that beat analysts' estimates and it forecast rising demand for chip-making equipment.

Economic and Fiscal Policy Minister Kaoru Yosano last week expressed optimism about a turnaround, saying that the disaster's effect on output was "smaller than first thought."

Prime Minister Naoto Kan's administration plans a second extra budget to pay for reconstruction, following an initial 4 trillion yen ($50 billion) package that it says may create about 200,000 jobs. The government in March estimated that damage from the disaster may swell to as high as 25 trillion yen.

--With assistance from Minh Bui, Theresa Barraclough, Makiko Kitamura and Yuki Hagiwara in Tokyo. Editors: Lily Nonomiya, Paul Panckhurst