UPDATE 1-China Steel to raise prices in Oct-Nov

* China Steel to raise price by 8.6 pct in Oct-Nov

* Price increase in line with market expectation

* Analysts positive on steel sector outlook

* Shares end up 2 pct, outperforming broader market

(Adds analyst comments, details)

By Lin Miao-jung and Faith Hung

TAIPEI, Sept 3 (Reuters) - China Steel (2002.TW), Taiwan's top steel maker, will raise its domestic product prices by 8.6 percent in October-November from September as demand recovers from the global economic meltdown, the company said on Thurday.

The rise, which followed the firm's biggest increase in a year in September, was roughly in line with market expectations of an 8 percent rise.

Some analysts said China Steel could raise its prices further, as re-stocking demand by rivals in Europe and the United States outweighed Chinese rivals's expected price cuts.

"Globally, the pressure of an industry-wide inventory corection will not be huge," said an analyst at First Global Securities Investment Trust. "We are positive about the sector's outlook throughout the first half of next year."

Earlier this week, several major Chinese steel mills slashed their produce prices for Setpember sales by up to 19 percent from their August levels, industry consultancy Umetal said, as spot prices contiuned to fall on weak demand.

The price cuts come as Chinese spot steel prices languish amid concerns that tighter bank lending, the government's crackdown on overcapacity in the steel industry and record output, may end the months-long price rally. [ID:nSHA75876]

China Steel previously raised its products by 9.4 percent for September, its biggest increase in a year. [ID:nTP193607]

The company used to adjust prices every three months in the previous year or so, but started announcing price changes twice a quarter earlier this year to better reflect global markets.

Before the announcement, China Steel shares closed 2.03 percent higher, beating the main index's .TWII 0.92 percent gain.

($1=T$32.9)

(Editing by Ken Wills)