* Production +1.7 pct mth/mth, biggest gain on record
* Yr/yr output +1.4 pct, first gain since April 2008
* December revised higher; increases beat expectations
(Updates with analysts' comments)
By Marcin Grajewski
BRUSSELS, March 12 (Reuters) - Euro zone industrial output in January recorded its biggest monthly increase on record and figures for December underwent a radical upward revision, boosting hopes that economic recovery remains on course.
Industrial production in the 16-country currency bloc jumped 1.7 percent from December, the steepest gain since the data series began in January 1990, European Union statistics office Eurostat said on Friday.
Production rose 1.4 percent in annual terms, the first positive yearly figure since April 2008.
Analysts polled by Reuters had on average expected production in January to increase 0.7 percent on the month and fall 1.9 percent year-on-year.
"This does suggest recovery is still on track," said Giada Giani, analyst at Citigroup.
ING economist Carsten Brzeski said: "It also means the weakening of the recovery that we had in the fourth quarter was really just temporary."
The euro extended gains versus the dollar following the data, rising to a one-month high of $1.3794.
Eurostat revised up the December production figures to plus 0.6 percent month-on-month and minus 4.1 percent annually from previous readings of -1.7 percent and -5.0 percent respectively. The data suggested that the euro zone's economic recovery from the biggest crisis since World War Two may be less fragile than expected so far.
The latest estimate by Eurostat showed that the zone's gross domestic product edged up 0.1 percent in the October-December period compared with the previous quarter and contracted by 2.1 percent from the last quarter of 2008.
The European Commission forecast last month that the euro zone economy would expand by 0.7 percent in 2010 after it shrank 4.0 percent last year.
WITHDRAWING STIMULUS
In general, upbeat figures could encourage governments to wind down fiscal measures which are aimed at bolstering growth but also put severe strains on public finances.
"Question marks remain over the strength of demand for manufacturing goods further out, particularly given that stimulus measures such as car scrappage schemes will be increasingly withdrawn," said Howard Archer, chief European economist at IHS Global Insight.
The European Central Bank looks at such economic data to decide how quickly to withdraw special liquidity measures for banks. It is expected to keep its main interest rate at a historic low of 1.0 percent at least until late 2010.
January production was driven by a jump in energy and intermediate goods, which rose 2.6 percent and 1.4 percent month-on-month respectively. Durable consumer goods increased by 2.0 percent while capital and non-durable consumer goods fell.
The biggest euro zone countries experienced higher production in January, led by Italy, where output rose 2.6 percent from the previous month.
Falls were registered in Spain, Portugal and Finland, where monthly production shrank 1.1 percent, 2.2 percent and 2.2 percent respectively. Ireland's output soared 15.3 percent. (Editing by Dale Hudson)