* Producer prices rise 0.5 percent, largest gain since June
* Core PPI up 0.6 percent, biggest rise in three years
WASHINGTON, April 11 (Reuters) - U.S. producer prices recorded their largest increase in nine months in March as the cost of food and services surged, pointing to some pockets of inflation at the factory gate.
The Labor Department said on Friday its seasonally adjusted producer price index for final demand increased 0.5 percent last month after slipping 0.1 percent in February.
The increase in prices received by the nation's farms, factories and refineries was the largest increase since June last year and exceeded economists' expectations for only a 0.1 percent gain.
Producer prices excluding volatile food and energy costs rose 0.6 percent, the biggest rise since March 2011. The so-called core PPI for final demand had declined 0.2 percent in February.
The dollar trimmed losses against the yen on the data, while prices for U.S. Treasury debt trimmed gains.
With PPI now broadened to include services, it will over time track closely the Consumer Price Index. The increase in producer prices could be signaling some pickup in domestic inflation in the months ahead.
"Certainly it does raise the question whether inflation is finally on the rise," said Gus Faucher, senior economist at PNC financial services in Pittsburgh. "It bears watching over the next three to six months to see whether the increase filters down to the consumer level."
Inflation has been running very low, allowing the Federal Reserve to maintain its expansionary monetary to nurse the economy.
Last month, food prices jumped 1.1 percent, the largest increase since May, after rising 0.6 percent in February.
Food prices were pushed up by a surge in the cost of pork, which saw its largest rise since August 2008. Sausage, deli meat and boxed meat prices rose by the most since August 1980.
Food prices have now risen for a third straight month, in part reflecting a drought in the West.
Services for final demand spiked 0.7 percent, the largest gain since January 2010, after falling 0.3 percent in February.
In the 12 months through March, producer prices advanced 1.4 percent. That was the largest increase in seven months and followed a 0.9 percent rise in February.
Another gauge of core producer prices - final demand less foods, energy, and trade services - rose 0.3 percent after ticking up 0.1 percent.
In the 12 months through March, core PPI for final demand rose 1.4 percent after increasing 1.1 percent in February.
(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)