* March inflation falls slightly short of forecasts at 0.7 pct
* Industrial output also rises less than expected in Feb
PARIS, April 10 (Reuters) - French inflation eased slightly more than expected last month to reach the lowest level since October, official figures showed on Thursday, adding to signs of dissipating price pressures in the euro zone.
In a further sign of slack in the euro zone's second-biggest economy, industrial production rose only marginally in February, although the manufacturing sector, which excludes energy output, fared slightly better.
French consumer prises in the euro zone's second-biggest economy rose 0.5 percent last month, giving an annual rate of 0.7 percent, the INSEE national statistics agency reported.
Down from 1.1 percent in February, the annual rate fell slightly short of economists average expectation for 0.8 percent and was the weakest reading since October last year, when a low euro zone inflation reading triggered an ECB interest rate cut.
INSEE said lower energy prices and to a lesser extent food prices weighed on inflation while prices for manufactured goods rebounded after the winter sale period. Core inflation, which excludes volatile price items, stood at 0.7 percent.
Carrefour, Europe's biggest retailer, reported on Thursday that sales at its closely watched French hypermarkets slowed amid a price war to win over budget conscious consumers.
ECB President Mario Draghi said last week the European Central Bank could launch unconventional measures if low inflation persisted in the coming months.
Inflation in France and the broader euro zone has fallen steadily in the face of weak demand although economists expect price pressures to gradually pick up as a recovery takes hold.
Industrial production data from INSEE on Thursday showed an increase of only 0.1 percent last month, while economists had forecast on average an increase of 0.3 percent.
Manufacturing production, which excludes the energy and other extractive industries, rose 0.3 percent.
The French government is banking on a plan to phase out 30 billion euros ($41.5 billion) in payroll taxes on companies over three years to help a nascent recovery gather more steam.
($1 = 0.7234 Euros) (Reporting by Leigh Thomas: Editing by Andrew Callus)