* Exports to euro zone up 5.1 pct in July despite crisis * Overall exports rise 0.8 pct * Monthly trade surplus is second highest on record * Asia trade stagnates; exports to China, Japan fall (Adds details, background) By Caroline Copley ZURICH, Aug 23 (Reuters) - Swiss exports ticked up in July, with sales of goods to the euro zone growing strongly even as Switzerland's top trading partner slips towards recession, thanks in part to the cap the central bank imposed on the soaring franc a year ago. Exports rose 0.8 percent to 17.41 billion Swiss francs ($17.89 billion) from July 2011, the Federal Customs Office said on Thursday. The trade surplus rose to 2.9 billion - the second highest monthly figure ever recorded - from 2.2 billion in June. The euro zone economy shrank 0.2 percent in the three months to June and looks headed for its second recession in three years, business surveys showed on Thursday. But despite the slowdown, sales of Swiss goods and services into the currency bloc, the destination of more than half of Switzerland's exports, climbed 5.1 percent in July. Those trade flows benefited from the cap of 1.20 per euro that the Swiss National Bank imposed on the franc last September to lessen the risk of deflation and a recession, as investors sought refuge from the euro zone crisis and pushed the Swiss currency up strongly. The SNB, which holds its quarterly policy review on Sept. 13, forecasts falling prices for this year due to the strength of the franc. But the trade data showed imported goods were 3 percent more expensive in July than a year earlier, a sign the downward pull on prices is waning. "We have signs here that the deflationary tendencies are diminishing each month," said ZKB economist David Marmet. "I don't think it will affect the policy announcement in September, but it shows the SNB's policies are having an effect." Trade unions, some exporters and the tourism sector have argued the franc is still far too strong at 1.20. But their calls for the SNB to try to weaken the currency further have died down of late, as the SNB indicated it could not just move the cap at will and as the economy has held up well. Peter Dietrich, director of machine and electronics industry group Swissmem, told the tabloid Blick that firms were still struggling with the franc cap. MIXED BAG Exports of chemicals - the biggest sector - grew 2.7 percent in July, but the machine and electronics industries - the second biggest - shrank by 14.6 percent. "I'm banking on a slowdown of momentum after quite a flattering first quarter," said Julius Baer Chief Economist Janwillem Acket. "Some niches like watches are still doing quite well but overall the stalling is on a broader level." Swissmem's Dietrich said that, while revenues at industrial firms had risen 1.4 percent in the first half of the year, there was a risk of them falling in the second. However, the leading KOF barometer, a pointer to the economy's performance in about six months' time, as well as the ZEW sentiment index have been fairly upbeat. Over the past year, strong trade with Asia has helped Swiss companies offset lower orders from clients in Europe - but that pattern partly reversed in July. Watches, such as those made by Swatch Group and Richemont, have been among the best performers, with signs of a slowdown in Chinese growth having little impact until now. But in July, growth in exports of watches slowed to 6.9 percent and overall sales of goods to Asia fell 0.2 percent. Exports to China slumped 23.1 percent and those to Japan were down 8.7 percent. Hong Kong, the third largest destination for Swiss goods in Asia, saw export growth of only 3.8 percent in July. More positively, exports to both India and South Korea rose by double-digit percentages.

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