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By Martin Santa
BRUSSELS (Reuters) - Euro zone industrial output defied market expectations of a small month-on-month rise and fell sharply in October, in a fresh warning about the fragility of the bloc's economic recovery.
The economic rebound of the 9.5 trillion euro economy almost came to a halt in the third quarter and the outlook remains clouded because of record high unemployment, weak consumer and business confidence.
Industrial production in the 17 countries using the single currency dropped 1.1 percent on the month, its biggest monthly decline since September last year, the data from the EU statistics agency Eurostat showed on Thursday.
Analysts polled by Reuters expected a 0.3 percent rise after a revised 0.2 percent drop in September.
"All in all, today's industrial production figures clearly highlight the bumpy and fragile nature of the euro zone's economic recovery," said Martin van Vliet, an economist at ING.
The monthly fall was led by a 4.0 percent drop in the highly volatile energy production, followed by a 2.4 percent decline in production of durable goods, such as cars and electronics, and capital goods production was down by 1.3 percent.
European refinery output in October dropped 6 percent on the year and was down by 7.9 percent on the month as refiners traditionally conduct routine maintenance in the third quarter, and weak profit margins pushed many to cut crude processing rates for economic reasons this year as well.
Compared with the same period last year, industrial output in October rose 0.2 percent for a second month in a row.
In Germany, Europe's largest economy, industrial production fell 1.2 percent month-on-month, biggest fall since July, while output in the second biggest economy - France - dropped by 0.3 percent on a monthly for a second consecutive month.
Germany's trade surplus narrowed in October on a jump in demand for imports from firms and households, while industrial output unexpectedly fell and industrial orders posted their biggest fall in nearly a year in October.
Ireland, which is exiting an international financial bailout, saw production plummeting 11.6 percent on the month, the worst performance since September last year.
"With euro zone growth seemingly stuck in low gear disinflationary pressures will persist, thereby keeping the possibility of further ECB action very much alive," Vliet said.
The European Central Bank cut interest rates to a record low of 0.25 percent in November in reaction a sharp fall in inflation and weak recovery, with the bank saying it stood ready to act to shield the rebound and keep inflation on projected path.
(Reporting by Martin Santa)