By Christine Kim
SEOUL (Reuters) - South Korea's factory output in November rose at the fastest pace in four months, but patchy domestic consumption and low inflation are expected to support market views for an interest rate cut as early as the first quarter of 2015.
The industrial output index rose by a seasonally adjusted 1.3 percent in November from October, Statistics Korea data showed on Tuesday. That beat the median forecast in a Reuters poll for a 1.0 percent rise and was the fastest clip since July's 1.6 percent gain.
Still, output has been see-sawing between declines and rises, and analysts don't see evidence there will be steady gains.
"The level of industrial output has still not recovered from its drop since July and is tracking a strong sequential rate of contraction in Q4 2014," said Ronald Man, an economist at HSBC in Hong Kong, who forecasts a rate cut early next year.
"The low inflation environment certainly provides room for more monetary easing, from an inflation targeting perspective."
December inflation data is due on Wednesday. According to the Reuters poll, the annual rate will be 0.8 percent, the lowest in more than 15 years.
Most economists polled this month predicted a cut in interest rates early next year to aid ongoing government stimulus measures while price pressures remain low due to falling oil and farm prices.
South Korea's benchmark rate is 2.00 percent, following two cuts of 25 basis points in August and October.
A MIXED PICTURE
On a year-on-year basis, industrial output slipped 3.4 percent in November, compared to the Reuters survey's median 2.5 percent fall and October's 3.2 percent decline.
Tuesday's numbers showed the domestic consumption picture is still mixed, with service-sector output edging down a seasonally adjusted 0.3 percent in November on a monthly basis while retail sales rose 1.9 percent from October.
A statement from the finance ministry was cautiously optimistic over Tuesday's data, saying economic improvement is spreading while falling global oil prices, plus government efforts to boost the recovery, are expected to revive Asia's fourth-largest economy next year.
Further generating hope that the recovery pace may pick up in 2015, a business sentiment survey on Monday showed manufacturers' confidence for conditions in January edged up to its highest level in 10 months, mostly on expectations for exports.
On Tuesday, central bank data showed that South Korea had a seasonally adjusted $9.73 billion (6.3 billion pounds) surplus in its current account in November, which is expected to bolster policymakers' confidence about the economy's fundamentals.
(Additional reporting by Lee Shin-hyung; Editing by Richard Borsuk)