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UPDATE 1-German industrial output drops in June, up in Q2

(Adds details, context, economist quotes)

BERLIN, Aug 7 (Reuters) - German industrial production unexpectedly fell for the first time this year in June, data showed on Monday, though it increased in the second quarter overall.

Output declined by 1.1 percent on the month after rising 1.2 percent in May, the Economy Ministry data showed. Expectations in a Reuters poll were for a 0.2 percent gain.

But factories and construction firms in Europe's largest economy produced 1.8 percent more in the April-June period than in the first quarter and the ministry said order levels, along with business climate indicators, pointed to the upward trend continuing.

"As unexpected as today's drop in industrial production has been, the German economy is still on track to post another strong quarter," said ING Bank economist Carsten Brzeski.

But a scandal over diesel emissions and cartel allegations engulfing Germany's automobile industry could ultimately hurt the economy, he said, especially as cars make up around one fifth of German exports.

The output data followed a run of upbeat economic indicators, painting a rosy picture of the economy that is likely to boost Chancellor Angela Merkel's chances of winning a fourth term in a national election on Sept. 24.

Merkel's conservatives, holding a 15-point lead over their Social Democrat (SPD) rivals in the latest poll, are brandishing their economic credentials after 12 years in government during which Germany has prospered.

The conservatives are campaigning on a platform of economic stability and more new jobs, pledging to ensure full employment by 2025 while the SPD - currently the conservatives' junior coalition partner - is promising to invest more and ensure more social justice if it gets back into government.

Data published on Friday showed strong domestic demand pushed up industrial orders twice as much as expected in June, boding well for the sector's output in the coming months.

Other recent data has shown business morale at a record high, unemployment falling, engineering orders increasing, the manufacturing sector growing and consumer morale rising.

A breakdown of Monday's data showed energy output was the only bright spot in June, climbing by 1.4 percent, while manufacturers of intermediate, capital and consumer goods all churned out less than in May. (Reporting by Michelle Martin, editing by Thomas Escritt and John Stonestreet)