* Sentiment index rose to 63 in Q4 from 62 in Q3
* Biggest concern is global economic uncertainty
* Southeast Asian companies most positive
* Defensive sectors such as food most positive
* Airlines, building most negative industries
By Miyoung Kim
SEOUL, Dec 19 (Reuters) - Business sentiment among Asia's top companies improved slightly in the fourth quarter, reversing two consecutive quarters of declines, while global economic uncertainty remained the biggest concern for the region's firms, a Thomson Reuters/INSEAD survey showed.
The Thomson Reuters/INSEAD Asia Business Sentiment Index rose to 63 in the fourth quarter from 62 in the third quarter of 2012, having peaked at 80 in the first quarter of 2011. A reading above 50 indicates an overall positive outlook, while one below 50 points to pessimism.
The results showed a stark contrast between companies in Southeast Asia, a region of about 600 million people now benefiting from an increase in foreign investment and which showed some of the highest positive readings, and manufacturing-heavy northeast Asia, which is more susceptible to the global economic downturn and had some of the lowest index readings.
China, where exports support an estimated 200 million jobs, showed the most positive response in the northeast Asian region, but companies in other export-focused economies such as Japan, South Korea and Taiwan remained more cautious.
"External risk factors that may pose problems in Asia are European debt crises re-escalating and if U.S. growth disappoints," said Juuso Mykkänen, chief executive of JOM Fund Management Ltd in Helsinki, which is running an investment company that have funds focused on investing in Asia.
"Asian own-risk factors are political ones that should be watched carefully. Territorial disputes should be also watched carefully."
The index surveyed more than 100 of the Asia-Pacific region's top companies in 11 economies. There were 96 responses.
The poll, conducted by Thomson Reuters in association with INSEAD, a global management and business school, was compiled between Dec. 3-14 and covered sectors such as autos, finance, property, resources and technology.
Indonesia, India, Malaysia and the Philippines all had the maximum scores of 100, followed by Thailand and China, whose indexes improved to 75 and 64 respectively from 64 and 50 in the previous quarter. South Korea also showed a sharp improvement from 20 to 50.
"Indonesia will remain our favourite destination in Asia due to very attractive structural forces in play currently. However, having said that, we have tactically increased weight in China in recent months as cyclical factors are on our side and valuations remain very compelling," said Mykkänen.
In contrast, companies in Taiwan were the most negative in Asia with a 33 index reading, the lowest level since the third quarter of 2011. It also compared with a reading of 40 in the third quarter.
Companies in Japan were the second-most negative, with a reading of 44 compared with a third-quarter reading of 48. It was the lowest reading in a year, underscoring the slow pace of recovery in the world's third-largest economy.
Many economists are betting Japan will ease monetary policy this week to pull the country out of a shallow recession, a Reuters poll showed.
Japan's economy recovered earlier this year from damage caused by March 2011's devastating earthquake, tsunami and subsequent nuclear crisis on spending for reconstruction.
As that boost tapered off, and the global slowdown hit Japan's export markets harder, the economy suffered a second straight quarterly contraction in July-September, putting it in a technical recession.
Offering a glimmer of hope, sentiment in the auto industry, a core part of Japan's manufacturing base, improved to 60 in the fourth quarter from 50.
DEFENSIVE SECTORS MORE POSITIVE
As uncertainty over the global economy persists, with the so-called "fiscal cliff" impasse in the United States now adding to the debt crisis in Europe, companies in defensive industries such as food showed more positive sentiment.
Asian companies are closely awaiting the result of last-minute negotiations in Washington on the fiscal cliff -- nearly $600 billion of tax increases and spending cuts set to take effect in January that could cause a sharp slowdown in growth or even tip the United States into recession.
"Generally in Southeast Asia we are focusing on the consumer sector due to rising wages, the infrastructure/construction sector, property developers, some insurance companies as they have very low valuations and good growth prospects due to low starting value," said Mykkänen.
The food sector was the most positive among industries, with a reading of 77 compared with 73 in the third quarter, followed by the drug sector with a reading of 72, although that was a decline from the 80 recorded in the third quarter.
The retail sector also posted a solid improvement, with its index reading rising to 75 from 50 in the third quarter, with four participants saying they were positive and the remaining four neutral, as the industry gears up for the year-end shopping season.
Fast Retailing Co Ltd, the operator of the Uniqlo casual clothing chain, reported a nearly 14 percent jump in November same store sales in Japan due to strong sales of its down jackets and winter wear. Its shares hit 2012 highs this week, fuelled by solid earnings recovery.
The shipping industry also saw an improved reading to 67 from 50, with none of the six shipping companies polled being bearish. None of them said they were worried about rising costs or foreign exchange volatility, and most of expected customer payments to remain the same.
In contrast, the airline and building sectors were the most negative with index readings of 0 and 25 respectively.
High fuel prices and regulatory uncertainty remain concerns for Asia-Pacific air carriers, while global economic uncertainty threatens to curb long-haul travel. (Additional reporting by Janeman Latul in JAKARTA and Anurag Kotoky in NEW DELHI; Editing by Alex Richardson)
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