Japan's Feb inflation accelerates as effects of fuel subsidies fade

(Adds details, context.)

* Feb core CPI rises 2.8% yr/yr, matches forecast

* Core-core CPI rises 3.2% yr/yr in February

* Markets on alert for clues on next BOJ rate hike timing

TOKYO, March 22 (Reuters) - Japan's core inflation accelerated in February as the effect of government fuel subsidies faded, data showed on Friday, a sign the economy is keeping price growth sustainably around the central bank's 2% target.

But an index stripping away the effect of fuel, closely watched by the Bank of Japan as an indicator of broader price trends, slowed in the year to February, highlighting uncertainty on how soon the central bank will hike interest rates again.

Markets are seeking clues on when the BOJ will next raise rates after its decision on Tuesday to exit its radical stimulus programme, making a historic shift away from a focus on reflating growth through aggressive monetary easing.

The nationwide core consumer price index (CPI), which excludes fresh foods but includes energy items, rose 2.8% in February from a year earlier, government data showed, accelerating from a 2.0% gain in January. It compared with a median market forecast for a 2.8% increase.

The so-called "core core" index, which excludes fresh food and energy costs, was up 3.2% in February from a year earlier after gaining 3.5% in January, the data showed. It marked the slowest year-on-year rise since January 2023.

Core consumer inflation has exceeded the BOJ's 2% target since April 2022, initially driven by a wave of price hikes from firms that passed on rising raw material costs to households.

The central bank has described its decision to end negative rates on Tuesday as driven by signs that robust demand and prospects of higher wages were prodding firms to keep hiking prices not just for goods but services.

BOJ Governor Kazuo Ueda said on Tuesday the central bank could hike rates again if inflation overshoots expectations or upside risks to the price outlook heighten significantly.

Japan's economy expanded an annualised 0.4% in the final quarter of last year, narrowly averting a technical recession as robust capital expenditure offset weaknesses in consumption.

But the BOJ revised down its economic assessment on Tuesday and warned of soft signs in consumption and output, casting doubt on the strength of Japan's recovery. (Reporting by Leika Kihara. Editing by Sam Holmes.)