By Daniel Flynn ROME, May 10 (Reuters) - Italian industrial output unexpectedly fell slightly in March due to weakness in consumer goods, data showed on Monday, but analysts said leading indicators suggested a fragile recovery remained on track. The 0.1 percent fall in industrial output from February defied analysts expectations for a rise of 0.5 percent and showed the euro zone's No. 3 economy lagging larger neighbours France and Germany, which posted strong output gains in March. While the year-on-year adjusted gain of 6.4 percent was the strongest since December 2006 -- coming in just below analysts' expectations of 7.4 percent -- economists said the monthly decline showed Italy's recovery remained shaky, ahead of the publication of first quarter GDP figures this week. "We have seen a significant stabilisation (of output) in February and March, which indicates that the initial recovery from June last year has now been interrupted," said Fedele de Novellis of Ref. "The Italian recovery still looks weak. There is no reason to raise the outlook for 2010 for maximum growth of 1 percent of GDP," he said. Production of consumer goods fell by -1.5 percent in March, cancelling out slight gains in investment goods and intermediate goods of 0.1 and 0.3 percent respectively. Output of vehicles -- which makes up over 5 percent of the index -- was hard hit, tumbling 8 percent, after the government ended incentives to the auto sector. Car maker Fiat is Italy's largest industrial producer. A fresh package of 300 million euros in industrial incentives, which excludes cars, will take affect from April and analysts said this could lift consumer goods production. Economists expressed surprise that March's figure came in so low, following solid consumer and business confidence figures from ISAE and the Purchasing Managers Index. Euro zone peers also turned in more robust performances. Data on Monday showed output in France, the euro zone's No.2 economy, jumped a better-than-expected 1.0 percent in March month-on-month, as strong output in metals, mining, energy and pharmaceuticals outweighed a fall in car production. However, economists said the 1.4 percent rise in Italy's industrial output quarter-on-quarter indicated that GDP growth in the first three months of the year, due to be published on Wednesday, should be solid. "March's figure was disappointing, but if you look at the quarterly figure it was not so bad," said Luigi Speranza of BNP Paribas. "In the coming months we may see industrial output playing catch up, because the leading indicators are all pointing higher." Speranza said believed Italy was still on track to meet his forecast of 0.6 percent growth in 2010. Silvio Berlusconi's centre-right government last week trimmed its growth forecast for this year to 1.0 percent from 1.1 percent after a record 5.0 percent contraction last year. That is still considered optimistic by many economists. "So far we have recovered only a fraction of the industrial production lost during the crisis. There is still a long way to go to make it up," said Novellis. ((Additional reporting by Giselda Vagnoni and Valentina Za; editing by Stephen Nisbet/Toby Chopra)) Keywords: ITALY OUTPUT/ (Rome newsroom; firstname.lastname@example.org; Phone: +39-06-8522-4232) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.
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