TOKYO, Japan (Reuters) -- The Japanese economy virtually ground to a halt in the July-September quarter, confirming concern that a slowdown in global demand is choking its export-reliant recovery.

Japan's gross domestic product (GDP), in price-adusted real terms, grew a meagre 0.1 percent from the previous quarter.

It was the sixth straight quarter of expansion but much weaker than a consensus forecast for a 0.5 percent gain, with external demand a drag on the economy for the first time in eight quarters.

The yen fell by about a quarter percent to around 106.70 to the dollar immediately after the GDP figures.

The stock market's benchmark Nikkei 225 average has gained more than a half percent to rise above 10,900 after opening slightly lower.

The growth figure translated into an annualised rate of 0.3 percent, well below U.S. growth of 3.7 percent in the same period and a far cry from Japan's own blistering decade-high pace of more than 6 percent in last year's final quarter and the first quarter this year.

"It was weaker than expected and the two sources were exports and the surprise negative (performance) of capital expenditure," said Masaaki Kanno, chief economist at J.P. Morgan Securities.

One reason why external demand, or net exports, became a negative contributor to GDP growth was higher global oil prices. But economists warn that exports could soon peak, with the yen's rekindled strength adding to the worry.

Thus domestic demand is carrying most of the weight for the world's second-largest economy for now.

"The economy is continuing to recover on strong domestic demand," a senior Cabinet Office official said.

"Risks going forward are the U.S. and Chinese economies. On the domestic front, we will need to see if wages will improve further," she added.

China's third-quarter GDP was up 9.1 percent from a year earlier, a slight slowdown in growth from 9.6 percent in the second quarter and 9.8 percent in the first quarter.

Private-sector consumption -- the biggest component of GDP, accounting for about 55 percent of economic activity -- rose 0.9 percent in July-September, better than economists' forecast for a 0.4 percent gain, helped by a rush to buy new flat-screen television sets to ahead of the Athens Olympics in August.

Capital spending fell 0.2 percent, however, undershooting a consensus forecast for a 2.0 percent rise as a procession of severe typhoons disrupted businesses.

Economists say signs of a spending slowdown are increasingly evident.

On Thursday, the government downgraded its assessment of machinery orders -- a leading indicator for capital spending -- for the first time in three years after a weak reading in September orders data.

Deflation, which has dogged the economy for over five years, remained persistent, with the GDP deflator down 2.1 percent from the same quarter a year earlier. The deflator is a parameter used to discount price inflation from nominal GDP.

Nominal GDP was flat from the previous quarter.

As the government cut public works spending to help curb a mountain of fiscal debt, public investment declined by 4.2 percent.