UPDATE 2-Japan industrial output stays on recovery track

(For more stories on the Japanese economy, click [ID:nECONJP])

* September output rises 1.4 percent month/month

* Manufacturers forecast output rises in Oct, Nov (Recasts lead, adds details on inventories, shipments)

By Stanley White

TOKYO, Oct 29 (Reuters) - Japanese industrial output rose for the seventh month running in September, the longest streak of gains in more than 12 years, as global stimulus measures led car and electronics makers to increase production.

The numbers bode well for Bank of Japan moves to withdraw its support for corporate finance, as they show that firmness in factory production, a major driving force in lifting the economy out of its deepest recession in decades, will continue to support the country's export-driven growth for now.

Inventories in September fell to their lowest level in 21 years as shipments rose and manufacturers forecast further increases in production in the following two months, suggesting output will maintain momentum in the coming quarter.

"There had been fears that momentum in October-December would drop off sharply after strong gains in April-June and again in July-September, but the numbers show that production is likely to continue solid growth in October-December," said Takuji Aida, an economist at UBS.

The 1.4 percent rise in September output was smaller than the 1.6 percent increase in August but above a median market forecast for a 1.0 percent rise. [JPIP1=ECI]

Output at automakers rose 8.2 percent in September, faster than a 1.9 percent increase the previous month. Production of parts for mobile phones and flat-panel TVs gained 5.0 percent in September, also faster than a 3.4 percent rise in August.

In September, overall inventories declined 0.5 percent, while shipments rose 3.4 percent.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 3.1 percent in October and increase 1.9 percent in November.

For a graphic of output and inventory click r.reuters.com/bag56f

Many Japanese manufacturers have benefited from a solid recovery in demand in Asia, which now absorbs more than half of Japan's total exports.

Chinese economic growth accelerated in July-September, while the South Korean economy posted its fastest growth in seven and a half years in the same quarter. [ID:nSP452724] [ID:nSEO299970]

Still, compared to robust growth in neighbouring countries, Japan's recovery will remain tame, held back by weakness in domestic consumption, which accounts for about three-fifths of the economy.

The BOJ is leaning towards scrapping some corporate finance support programmes that expire in December on the grounds that credit and money markets have come back to normal. [ID:nT271532]

But the central bank is expected to stress that it will keep interest rates near zero as deflation is seen lasting at least three years. (Editing by Hugh Lawson)