Industrial output rises on strong manufacturing

WASHINGTON (Reuters) - Industrial output rose in December as manufacturing rebounded at its strongest pace in a year, countering a weather-related decline in utilities, Federal Reserve data showed on Wednesday.

Industrial production increased 0.4 percent last month, the Federal Reserve said, after falling 0.3 percent in November.

Economists polled by Reuters had expected industrial production to increase 0.5 percent last month after a previously reported 0.2 percent drop.

For the fourth quarter as a whole, industrial output rose at an annual rate of 3.1 percent, increasing for the 10th consecutive quarter.

The report indicated the production side of the economy ended the year on a firmer footing, with manufacturing output rising 0.9 percent after contracting 0.4 percent in November.

The increase in manufacturing output last month was the largest since December 2010 and the sector saw gains across the board.

Manufacturing has been one of the main drivers of growth in the U.S. economy since the end of the 2007-09 recession. The economy is expected to have expanded at an annual pace of at least 3 percent in the fourth quarter.

But with the euro zone expected to slide into recession in the first half of the year, slowing export growth is seen taking some edge off manufacturing.

Last month, mining output rose 0.3 percent after advancing 0.5 percent in November.

Unseasonably warm winter weather saw utilities output plunging 2.7 percent after a 0.6 percent decline the prior month. It was the fifth consecutive month of declines for utilities.

Capacity utilization, a measure of how fully firms are using their resources, rose 78.1 percent from 77.8 percent the prior month. That was 2.3 percentage points below the 1972-to-2010 average.

Analysts were expecting capacity use to rise to 78.1 percent. Capacity use in manufacturing rose to 75.9 percent, the highest since June 2008.

Officials at the Fed tend to look at utilization measures as a signal of how much "slack" remains in the economy -- how far growth has room to run before it becomes inflationary.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)