RPT-UPDATE 2-South Africa's 2008 gold output lowest since 1922

* Output fell 13.6 percent to 220,127 kg in 2008

* Power shortages, dwindling grades hit production

* South Africa now behind China, United States

(Adds power problems, analyst, context, repeats to broaden distribution)

By James Macharia

JOHANNESBURG, Feb 24 (Reuters) - South Africa's gold output in 2008 fell to its lowest level in 86 years due to a power shortage and dwindling grades, lowering it to the world's number three producer behind China and the United States.

The closure of mines due to a major power shortage in South Africa from Jan. 24 to Jan. 31 last year was also the first time the gold mining sector had been closed since the Anglo Boer war between 1900 and 1902, an industry body said in a statement.

The Chamber of Mines said on Tuesday gold output in Africa's biggest economy fell 13.6 percent to 220,127 kg in 2008, the lowest level since the 218,031 kg output in 1922.

"The 13.6 percent decline was also the largest single drop in gold production since the strike-induced 13.8 percent decline in 1922," the Chamber said.

The Chamber groups the country's big gold mining firms, including AngloGold Ashanti (ANGJ.J) and Gold Fields (GFIJ.J), the world's number three and four producers, respectively.

A near-collapse of South Africa's national grid early last year forced mines, factories and smelters to temporarily shut for a few days, costing Africa's biggest economy billions of dollars in lost output and sending precious metals prices soaring.

South Africa has owned up to underinvestment causing power shortages that led to rationing of electricity to mines, which now receive about 90-95 percent of their power needs.

State-owned utility Eskom [ESCJ.UL] said last month the power supply was better than a year ago, but was not out of the woods. The government also ruled out ending power rationing at mines for now.

South Africa surrendered its crown as the world's top gold producer in 2007 to China, confirming analysts' concerns about dwindling gold ore grades. In 2008, it slipped further to number three, behind China and the United States, the Chamber said.

TOP MINER SINCE 1905

South Africa had been the world's top gold miner since 1905.

Industry players doubt that its record output peak of 1,000 tonnes in a single year, reached in 1970, can ever be exceeded.

"South African gold production is on the decline because its mines have reached maturity," David Davis, a Johannesburg-based analyst at Credit Suisse Standard Securities said.

"Globally, gold production will be on the decline between 2-3 percent per annum for the next 4 to 5 years, because no new mines are being developed fast enough to replace old ones," said the author of the annual Gold Report.

London-based metals authority GFMS Ltd. has said world gold production fell by 4 percent last year, largely due to large declines in output by Australia, Indonesia and South Africa.

Despite its decline, South Africa's gold mining sector was still a crucial part of the economy, accounting for about 2.5 percent of gross domestic product. (Reporting by James Macharia, editing by Anthony Barker)