diff --git a/org.eclipse.jdt.core.tests.compiler/src/org/eclipse/jdt/core/tests/compiler/regression/FlowAnalysisTest.java b/org.eclipse.jdt.core.tests.compiler/src/org/eclipse/jdt/core/tests/compiler/regression/FlowAnalysisTest.java
index 5c83d04..3d7afcd 100644
--- a/org.eclipse.jdt.core.tests.compiler/src/org/eclipse/jdt/core/tests/compiler/regression/FlowAnalysisTest.java
+++ b/org.eclipse.jdt.core.tests.compiler/src/org/eclipse/jdt/core/tests/compiler/regression/FlowAnalysisTest.java
@@ -10,6 +10,7 @@
  *     Stephan Herrmann - Contributions for
  *     							bug 236385 - [compiler] Warn for potential programming problem if an object is created but not used
  *      						bug 349326 - [1.7] new warning for missing try-with-resources
+ *      						bug 360328 - [compiler][null] detect null problems in nested code (local class inside a loop)
  *******************************************************************************/
 package org.eclipse.jdt.core.tests.compiler.regression;
 
@@ -30,6 +31,7 @@
 
 public class FlowAnalysisTest extends AbstractRegressionTest {
 static {
+//	TESTS_NAMES = new String[] { "testLocalClassInInitializer1" };
 //	TESTS_NUMBERS = new int[] { 69 };
 }
 public FlowAnalysisTest(String name) {
@@ -2408,6 +2410,35 @@
 			}, 
 			"");	
 }
+// Bug 360328 - [compiler][null] detect null problems in nested code (local class inside a loop)
+// return/break/continue inside anonymous class inside try-catch inside initializer
+public void testLocalClassInInitializer1() {
+	this.runConformTest(
+			new String[] {
+				"X.java",
+				"public class X {\n" +
+				"    static {\n" +
+				"        final int i=4;\n" +
+				"        try {\n" +
+				"            Runnable runner = new Runnable() {\n" +
+				"                public void run() {\n" +
+				"                    switch (i) {" +
+				"                        case 4: break;\n" +
+				"                    }\n" +
+				"                    int j = i;\n" +
+				"                    while (j++ < 10) {\n" +
+				"                        if (j == 2) continue;\n" +
+				"                        if (j == 4) break;\n" +
+				"                        if (j == 6) return;\n" +
+				"                    }\n" +
+				"                }\n" +
+				"            };\n" +
+				"        } catch (RuntimeException re) {}\n" +
+				"    }\n" +
+				"}\n"
+			}, 
+			"");	
+}
 public static Class testClass() {
 	return FlowAnalysisTest.class;
 }
diff --git a/org.eclipse.jdt.core/compiler/org/eclipse/jdt/internal/compiler/ast/ReturnStatement.java b/org.eclipse.jdt.core/compiler/org/eclipse/jdt/internal/compiler/ast/ReturnStatement.java
index ca1e277..f2b6010 100644
--- a/org.eclipse.jdt.core/compiler/org/eclipse/jdt/internal/compiler/ast/ReturnStatement.java
+++ b/org.eclipse.jdt.core/compiler/org/eclipse/jdt/internal/compiler/ast/ReturnStatement.java
@@ -10,6 +10,7 @@
  *     Stephan Herrmann - Contributions for 
  *     							bug 319201 - [null] no warning when unboxing SingleNameReference causes NPE
  *     							bug 349326 - [1.7] new warning for missing try-with-resources
+ *     							bug 360328 - [compiler][null] detect null problems in nested code (local class inside a loop)
  *******************************************************************************/
 package org.eclipse.jdt.internal.compiler.ast;
 
@@ -37,6 +38,8 @@
 
 	// lookup the label, this should answer the returnContext
 
+	MethodScope methodScope = currentScope.methodScope();
+	AbstractMethodDeclaration referenceMethod = methodScope.referenceMethod();
 	if (this.expression != null) {
 		flowInfo = this.expression.analyseCode(currentScope, flowContext, flowInfo);
 		if ((this.expression.implicitConversion & TypeIds.UNBOXING) != 0) {
@@ -44,7 +47,7 @@
 		}
 		FakedTrackingVariable trackingVariable = FakedTrackingVariable.getCloseTrackingVariable(this.expression);
 		if (trackingVariable != null) {
-			if (currentScope.methodScope() != trackingVariable.methodScope)
+			if (methodScope != trackingVariable.methodScope)
 				trackingVariable.markClosedInNestedMethod();
 			// don't report issues concerning this local, since by returning
 			// the method passes the responsibility to the caller:
@@ -52,7 +55,7 @@
 		}
 	}
 	this.initStateIndex =
-		currentScope.methodScope().recordInitializationStates(flowInfo);
+		methodScope.recordInitializationStates(flowInfo);
 	// compute the return sequence (running the finally blocks)
 	FlowContext traversedContext = flowContext;
 	int subCount = 0;
@@ -89,13 +92,15 @@
 					}
 					saveValueNeeded = true;
 					this.initStateIndex =
-						currentScope.methodScope().recordInitializationStates(flowInfo);
+						methodScope.recordInitializationStates(flowInfo);
 				}
 			}
 		} else if (traversedContext instanceof InitializationFlowContext) {
 				currentScope.problemReporter().cannotReturnInInitializer(this);
 				return FlowInfo.DEAD_END;
 		}
+		if (traversedContext.associatedNode == referenceMethod)
+			break; // don't traverse beyond the enclosing method (see https://bugs.eclipse.org/360328).
 	} while ((traversedContext = traversedContext.parent) != null);
 
 	// resize subroutines