UPDATE 2-Mexico Aug industry output shows biggest fall since Feb
* Mexican industrial output -0.8 pct vs poll -0.4 pct * Activity fell in tandem with U.S. factories * Mining only sector to grow in August By Krista Hughes MEXICO CITY, Oct 12 (Reuters) - Mexico's industrial output fell the most in six months in August as factories in Latin America's No. 2 economy flagged along with their counterparts in the United States. Industrial production fell a seasonally adjusted 0.8 percent from July, the national statistics agency said on Friday, worse than expected in a Reuters poll that saw a 0.38 percent decline. It was the biggest fall since February and more than reversed a 0.5 percent gain in July. The contraction followed two months of increases and was in line with data from the United States, where factory activity shrank in August for the third straight month and by the largest amount in more than three years. Still, in a potentially positive sign, the U.S. Institute for Supply Management's (ISM) index of factory activity did rebound in September and consumer sentiment jumped to a five-year high in October. "The rhythm has been two months of gains and one month of decline, but as long as (the decline) remains marginal I don't see any problems," said 4Cast economist Pedro Tuesta. The drop in Mexican output was driven by a drop in activity in three of the four sectors covered, with manufacturing down 0.9 percent in the month, construction down 1.9 percent and utilities down 0.8 percent. Mining rose 0.4 percent. Growth in Mexico is expected to decelerate in the second half of the year, with economists polled by Reuters expecting growth of 3.8 percent this year. Compared with August 2011, industrial output rose 3.6 percent, below an expected 3.8 percent increase and a marked slowing from July's upwardly revised 5 percent expansion. Mexico's central bank has warned it could raise interest rates from the current 4.5 percent after inflation rose to its highest in more than two years, although investors are pricing in no change to rates until April 2014.