* Industrial output worse than expected, some analysts see bottom
* Retail sales fall worst on record
* Scrap subsidies in neighbouring countries help
(Adds current account data, analyst comment)
By Jana Mlcochova
PRAGUE, April 14 (Reuters) - Czech industrial output shrank by nearly a quarter and retail sales fell far more than expected in February, strengthening the case for more interest rate cuts although some analysts said the data could signal the bottom.
February's industrial production plunged by 23.4 percent year on year, worse than a 19 percent decline forecast by analysts and a revised 22.8 percent fall in the previous month, the Czech Statistical Bureau said on Tuesday.
Retail sales fell 7.9 percent in their biggest drop since records started in January 2001, separate data showed.
The export-reliant economy has suffered from slumping demand in the recession-stricken euro zone. New foreign orders sank 23.5 percent, the data showed.
"It is no surprise after foreign trade and especially the decrease in exports. We are closely connected to the euro zone ... so the outlook for Czech industry is still darker and darker," said David Marek, chief analyst at Patria Finance.
"One positive point is the car scrapping subsidy in Germany and Slovakia. That could limit a further fall in industrial output in the months to come. This figure could be the last of the awful figures in the series."
The largest Czech company by sales, Volkswagen AG's
"The numbers show the bottom was likely in the first quarter," said Jaromir Sindel, analyst at Citibank.
"The weakness will remain in the first half of this year and we should get to single digits... in the third quarter."
Manufacturers in the region could see a further boost in sales following a decision by the German government to sharply increase the scrap subsidy scheme, raising government funds for the incentive programme to 5 billion euros from 1.5 billion and extending it until the end of the year. [ID:nL783598]
RATE CUTS ON TABLE
The global financial crisis has filtered through to central Europe's once fast growing economies in recent months, with the Czech Republic showing a quarter-on-quarter drop in gross domestic product in the fourth quarter of 2008.
Data from the central bank showed the country's current account posted a surplus of 17.13 billion crowns ($856.9 million) in February.
That was far above forecast of 1.4 billion, thanks chiefly to an inflow of EU funds and a thin volume of repatriated profits as foreign investors booked lower earnings.
Analysts said the eroding picture illustrated by both the industrial output and retail sales data would give the central bank more ammunition to continue slashing interest rates.
"The data released today, both from industry and construction, and also retail sales data, is supportive to expectations that the Czech central bank may cut its interest rates by 25 basis points at its 7 May meeting," Radomir Jac, chief analyst at Generali PPF Asset Management.
The crown marginally weakened to 26.575 to the euro
For INSTANT VIEW on industry click on........[ID:nLE220727]
For TABLE on industry click on...............[ID:nPRA002505]
For INSTANT VIEW on retail sales click on....[ID:nLE459920]
For TABLE on retail sales click on...........[ID:nPRA002506]
For TABLE on current account clic on.........[ID:nPRA002507]
(Editing by Andy Bruce and Jason Neely)