Debt held by Japanese companies that went bankrupt in October rose 53.8 per cent year-on-year to 749 billion yen ($6.14 billion), leading credit research firm Tokyo Shoko Research said.

The figure for the calendar year could surpass a record of 14.45 trillion yen marked in 1997, it said. "Under current circumstances, with real economic activity falling substantially, it is hard to predict any immediate (economic) recovery," said Tokyo Shoko. "Bankruptcy numbers should continue to rise from their year-ago levels."

Bankruptcies in October rose five per cent to 1,685, after recent months of double-digit growth. The January-to-October total of 16,527 cases topped last year's tally of 16,464, it said.

The weak economy was also eating into corporate earnings. Corporate current profits sagged nearly 30 per cent year-on-year in the April-September period,according a survey by Wako Research Institute of Economics.

Its survey of companies listed on the Tokyo Stock Exchange's first section showed corporate net profit dropped by nearly 70 per cent from a year earlier -- the largest drop since Wako started compiling comparable data in 1964-65.

The survey was based on corporate earnings reported so far for the April-September period. "This (April-September) period must be the worst ever for corporate earnings," Hiroki Matsushita, a Wako analyst. "But it may be in further danger if a series of major bankruptcies were to be triggered in the aftermath of a heightened credit crunch."

Earlier in the day, prime minister Keizo Obuchi unveiled an economic package totalling nearly 24 trillion yen, the largest ever of its kind. It included some 18 trillion yen in pump-priming measures such as public works spending and over six trillion yen in income and corporate tax cuts as well as measures to avert a credit crunch in the corporate sector. The package followed lastFriday's decision by the Bank of Japan (BOJ) to create an extraordinary loan programme to help business overcome the credit crunch.

Analysts said these steps underlined the hardships faced by corporate sector suffering a double blow of dwindling sales and a tighter lending stance by banks.

Soichi Okuda, a senior economist at Nippon Credit Bank, said steps by the BOJ and government could soothe fears that even sound firms may go bankrupt due to increasing difficulty in securing funds towards the end of the year.

"It's a safety net laid out by the government in an attempt to avoid a repetition of any sudden bankruptcy like the one we saw last December," Okuda said. Last December, medium-sized foodstuff trading firm Toshoku Ltd filed for court protection as creditor banks rushed to recover loans extended to the company.

But Okuda said the package would hardly be enough to overcome shortfall in domestic demand against supply, which is estimated to be worth 30 trillion to 40 trillion yen.

Rokuro Kuroda,a senior researcher at Tokyo Shoko, said he could not rule out the chance that under the tough conditions, failures of firms in the "losers" group would increase. "I think we will see further consolidation in the group of losers," Kuroda said.

He said the transfer of business from failed Hokkaido Takushoku Bank (Hokutaku) to Chuo Trust & Banking Co Ltd and North Pacific Bank Ltd on Monday could make things worse, as some borrowers of Hokutaku would find it hard to obtain fresh loans, especially towards the year end.