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UPDATE 2-Argentina September industry output surprisingly weak
* Production slumps from year ago and versus previous month
* Market had forecast 0.8 percent year-on-year decline
* Industrial output down 1.3 percent in Jan-Sept period
By Hilary Burke
BUENOS AIRES, Oct 25 (Reuters) - Argentina's industrial output took an unexpected dive in September, reflecting the country's increasingly tough business environment and weak Brazilian demand for cars.
The government on Thursday reported a 4.4 percent year-on-year drop in industrial production last month , with losses led by the automotive sector. This was well below the 0.8 percent decline forecast by nine analysts polled by Reuters, whose estimates ranged from -4.0 percent to +0.4 percent.
The figure marked the sixth straight month of year-on-year decline of industrial output in Argentina. Economic growth in Latin America's No. 3 economy is slowing sharply after booming for most of the last nine years.
Factory output fell 1.7 percent in September compared with August, seasonally adjusted, the government said.
Analysts say tough new import rules imposed in February have delayed entry of some foreign-made parts and machinery while government currency controls - intensified in May - have hit investment and demand.
Industrial production was thought to have bottomed out earlier this year when it sank 4.6 percent and 4.7 percent year-on-year in May and June, respectively. The declines were milder in July and August and many analysts predicted a rebound was in the works. September's data cast doubt on that.
"What is most surprising is the seasonally adjusted (month-on-month) decline," said Milagros Gismondi, chief economist at Orlando J. Ferreres & Associates (OJF) consulting firm. "What we're seeing is that industry is in negative terrain and doesn't seem to be recovering."
"This makes it clear that it's not just the initial impact of the (poor) grains harvest, or the automotive industry, but there are deeper factors at work here, fundamentally the drop in investment," Gismondi said.
OJF's data shows gross domestic investment in Argentina fell 8.5 percent in the first nine months of 2012.
The automotive sector has been hit hard by waning demand from neighboring Brazil, its top market. Brazilian economic activity picked up pace in August but the expected recovery has been slow to take hold.
In September, production in Argentina's automotive sector plunged 13.7 percent year-on-year and sank 11.8 percent versus August, the INDEC national statistics institute said.
Despite this year's sharp output drop, General Motors Co said it will invest $450 million to expand production in Argentina and launch a new Chevrolet model in late 2015 - part of a broader plan to expand its presence in Argentina and Brazil.
In the first nine months of this year, industrial production fell 1.3 percent compared with same period of 2011.
Analysts have long accused the government of exaggerating industrial production growth and economic activity for political gain, while drastically lowballing inflation. The International Monetary Fund has taken Argentina to task over its statistics.
Local think-tank FIEL measured a 3.8 percent decline in industrial production in September from a year earlier - similar to the official rate - but it said output increased 2.0 percent versus August in seasonally adjusted terms.
FIEL also reported that factory output rose 2.2 percent in the third quarter versus the second quarter, whereas official data showed production inched just 0.3 percent higher.
Earlier this year, the government started reporting economic activity and industrial production data that matched or even looked worse than private figures after many months of rosy numbers.
This unexpected change raised eyebrows and private economists said it could reflect the government's interest in reporting 2012 economic growth below the 3.26 percent threshold that would trigger a roughly $4 billion payout to holders of Argentina's growth-linked GDP warrants.
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