UPDATE 2-French industry output falls in Sept, but Q3 strong

By Vicky Buffery PARIS, Nov 10 (Reuters) - French industrial output fell unexpectedly on the month in September but rose sharply in the third quarter as a whole, data on Tuesday showed, sending mixed signals on the health of the euro zone's second largest economy. National statistics agency INSEE said industrial output fell 1.5 percent month-on-month in September, well below a forecast for 0.5 percent growth from a Reuters poll of economists. The surprise fall showed that conditions in the euro zone's second largest economy remained difficult. However, August output growth was revised upwards to 2.8 percent from a previously reported 1.8 percent and production in the third quarter as a whole rose 2.9 percent after a 0.6 percent increase in the second quarter. "I think it shows how fragile the recovery of French industry is," said Alexander Law of Paris consultants Xerfi. "When you look at surveys, you know that order books are still quite empty, and that is actually reflected today in the weakness of industrial output in September." Data from neighbouring countries gave conflicting signals, making the outlook for the euro zone economy difficult to read. In Germany, industrial output jumped 2.7 percent month-on-month in September and 3.5 percent on the quarter. But in Italy, output slumped by a record 5.3 percent on the month, while rising 4.0 percent quarter-on-quarter. For a graph on output in Germany, France and Italy, click on: http://graphics.thomsonreuters.com/119/EZ_INDPRD1109.gif BRAKE ON CAR PRODUCTION France releases provisional gross domestic product data for the third quarter on Friday, with economists polled by Reuters forecasting a 0.3 percent increase. However, some analysts said they expected a higher figure given Tuesday's sturdy output data for the whole quarter. Despite some positive recent signals on France's economy, analysts warned the recovery might stutter given that it is benefiting from a number of temporary props. "The third quarter was excellent, but I am slightly more concerned about the fourth quarter," said Pierre-Olivier Beffy, chief economist with Exane BNP Paribas. He is predicting Q3 GDP growth in France of 0.6 percent or even higher, while forecasting growth of 0.3 percent in Q4. One of the concerns for France is that various European cash-for-clunkers schemes, which have given a much-needed boost to the local auto industry, will soon be wound down. Car production dropped 7.9 percent in September after a 17.9 percent jump in August, leaving analysts to wonder if French auto firms have already started to scale back output. Overall, manufacturing output in France fell 1.6 percent on the month in September, climbing 3.3 percent on the quarter. "This record quarterly rise represents a dynamic pick up in industrial activity following the historic falls seen at the start of the year," Economy Minister Christine Lagarde said in reaction to Tuesday's industrial output data. In a separate survey released on Tuesday, INSEE revised downwards slightly its forecast for industrial investment, predicting a 22 percent drop in 2009 compared with a previous forecast for a 21 percent fall. "There's still a long way to go to recover the ground lost during the crisis," said Xerfi's Law. (Additional reporting by Crispian Balmer) (Editing by Chris Pizzey and Andy Bruce) Keywords: ECONOMY FRANCE/ ([e-mail] ; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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