It should only occur in the direction of travel of the object.

EDIT: Actually, length contraction occurs in a direction parallel to the direction of motion, not just the direction of motion. In other words, even if the object was going the exact opposite way as its original direction of motion, a stationary observer would still see the spaceship as being contracted. The only difference between moving toward a stationary observer and moving away from a stationary observer is that when moving toward the observer, the spaceship would be blue shifted and when moving away, the spaceship would be red shifted (relativistic doppler effect).