* EMAE rose 7.8 pct in Sept vs same month last year
* Real activity flat in 3rd quarter - analyst
* Primary budget soared to 3.1 bln pesos in Oct (Adds comments from analysts, details, byline)
By Juliana Castilla and Eduardo Garcia
BUENOS AIRES, Nov 19 (Reuters) - Argentina's economy is growing strongly, but at a slower pace than in previous months, the country's economic activity indicator showed on Friday.
The EMAE economic activity index -- a close proxy of gross domestic product -- rose 7.8 percent in September versus the same month last year, according to the INDEC statistics agency ARECI14, the slowest year-on-year pace since March.
The EMAE rose 8.5 percent in August year-on-year and has been increasing by over 8 percent since March. According to the INDEC, economic activity expanded by 0.2 percent in September versus August.
"In seasonally adjusted terms real activity was flat during the third quarter," said Alberto Ramos, a senior analyst for Goldman Sachs.
"This shows that the real business cycle is maturing, which raises the risk the authorities could step up the level of policy stimulus, which could intensify already high inflationary pressures," Ramos added.
Latin America's No. 3 economy is expanding at one of the fastest rates in the region, fueled by strong demand for Argentine-made cars and manufactured goods from neighboring Brazil and a record soybean and corn harvest last season.
The government has forecast annual expansion at 9 percent this year.
However, robust economic growth is stoking inflation. Analysts see annual inflation at over 25 percent this year, well above the forecast by the government, which has been accused of under-reporting price increases for political gain and to save money on repayments of inflation-indexed bonds.
Inflation is being fueled by brisk public spending and the government's controversial use of central bank profits and reserves to pay debt. [ID:N12194801]
Analysts expect the government to maintain loose monetary policy ahead of an October 2011 vote in which President Cristina Fernandez is likely to seek re-election.
Argentina's industrial production ARIO=ECI fell 0.4 percent in October compared with September, the government's seasonally adjusted data showed on Friday.
Industry output rose 8.4 percent in October from the same month last year, below the median forecast in a Reuters poll that predicted an 8.6 percent year-on-year increase.
"It looks like there is no more room for growth. The bottleneck is due to energy (limits)," and because the industry is already using all its installed capacity, said Milagros Gismondi, an analyst with Buenos Aires-based consulting firm Orlando Ferreres and Associates.
Meanwhile, Economy Minister Amado Boudou said on Friday that the primary budget surplus ARPBS=ECI widened to 3.1 billion pesos ($754.1 million) in October, compared with 702.2 million pesos a year earlier.
The primary budget figure is used to gauge a country's ability to service its debt and is a particularly important sign of fiscal health in Latin America's No. 3 economy.
Argentina has been virtually shut out of global credit markets since a massive 2002 default.
The government concluded a swap of $12.2 billion in untendered bonds in June and hopes to reach a deal with the Paris Club during the first three months of 2011 to repay roughly $6.5 billion in defaulted debt. [ID:nN17232574] ($1=4.055 Argentine pesos ARSB=) (Additional reporting by Karina Grazina, Guido Nejamkis, Luis Henao and Walter Bianchi; Writing by Eduardo Garcia; Editing by Dan Grebler)