UPDATE 1-Taiwan raises 2013 GDP growth outlook to 3.59 pct

* Taiwan Q4 GDP +3.72 pct vs preliminary estimate +3.42 pct

* Raises 2013 GDP forecast to +3.59 pct, a two-year high

* 2013 inflation seen at 1.37 pct vs prev forecast 1.31 pct

TAIPEI, Feb 22 (Reuters) - Taiwan raised its 2013 economic growth outlook slightly on Friday, as momentum picked up in the fourth quarter on stronger global demand, especially from its biggest trade partner China, and improving domestic consumption.

The government raised this year's growth outlook to 3.59 percent from a preliminary 3.53 percent, citing stabilising global economic growth, stronger exports, more trading in the local stock market and improved domestic demand.

That would be the island's best performance in two years. The economy expanded 4.07 percent in 2011.

"The figures look very optimistic, as the whole sentiment has turned positive. But judging from the U.S. and Europe data, end-demand is still not very strong, especially in Europe," said Forrest Chen, an analyst at Ta Chong Bank in Taipei.

Gross domestic product grew 3.72 percent in the fourth quarter from a year earlier, slightly more than an advance estimate of 3.42 percent, it said in a statement.

Quarter-on-quarter, the economy grew a seasonally adjusted 1.78 percent in the fourth quarter, also quickening from an earlier estimate of 1.47 percent.

The government also lifted its 2013 inflation forecast to 1.37 percent from a preliminary 1.31 percent, causing some to suggest the central bank could tighten policy earlier in the year.

"It's already the second time the government revised up CPI. The central bank may adjust the interest rate policy accordingly. I expect it will raise rates in June if CPI rises above 1.5 percent," said Tony Phoo, an economist of Standard Chartered Bank in Taipei.

The government has said it expects export orders to improve this year from 2012 as worldwide demand for handheld electronic devices such as smartphones remains strong.

Exports in January rose 21.8 percent from a year earlier in their fastest growth in 21 months, slightly below expectations, amid robust demand for the island's exports ahead of the Lunar New Year holidays.

Taiwanese firms are the main suppliers to most of the world's top tech brands, including Apple Inc, Dell and Nokia. The heavy reliance on electronics exports makes the island's economy especially vulnerable to swings in external demand.

Taiwan published preliminary growth figures in late January.

But the global outlook remains far from clear.

Neighbouring South Korea's export machine is still struggling. It reported this week that export growth virtually stalled for the year through Feb. 20.

A raft of U.S. economic data on Thursday from claims for jobless aid to factory activity and consumer prices pointed to a still tepid recovery, while the divide between the euro zone's strong and weak economies deepened in February, dealing a blow to hopes the euro zone might emerge from recession soon.

(Additional reporting by Clare Jim; Editing by Jacqueline Wong)