(Recasts with economists' comments)
By Jan Strupczewski
BRUSSELS, Nov 27 (Reuters) - Rising production expectations in industry boosted economic sentiment in the euro zone by more than expected in November, data showed on Friday, indicating continued economic recovery in the fourth quarter.
A monthly European Commission survey showed economic sentiment in the 16 countries using the euro rose to 88.8 points from October's 86.1, marking an eighth straight month of improvement and signaling further recovery in coming months.
Forecasts from economists polled by Reuters had centred on a reading of 88.0 for November.
"Today's data show that euro zone recovery is strengthening," said Clemente de Lucia, economist at BNP Paribas, forecasting a 0.6 percent quarter-on-quarter gross domestic product (GDP) increase in the last quarter against an 0.4 percent rise in the third.
"However there is still a long road to recovery. The level of excess of spare capacity is still high. Capacity utilisations in the manufacturing sector are close to their lowest rate ever recorded. Spare capacity and still weak demand are limiting price pressures," de Lucia said.
Sentiment in euro zone industry rose two points to -19 in November, the mood in the services sector jumped to -4 from -7, while retail rose to -11 from -15 and construction to -26 from -29.
Consumers also became less pessimistic, with that index rising to -17 from -18. "The improvement is being driven by increased optimism among households about the general economic outlook," said Nick Kounis, economist at Fortis bank.
"This points to scope for a fall in the savings ratio in the coming quarters as it had previously risen sharply on the back of consumer worries about the economy," he said.
He said a fall in household savings could help partially cushion the blow to consumer demand from rising unemployment and slowing wage growth.
Consumer inflation expectations rose from record lows of -16 in August and -14 in September and October to -11 in November, but remained well below the long-term average of a positive 21 and selling-price expectations among firms eased to -9 from -8.
"This reinforces the belief that underlying inflationary pressures remain very weak and supports the view that euro zone consumer price inflation is likely to substantially undershoot its target for an extended period," said Howard Archer, economist at IHS Global Insight.
The European Central Bank aims to keep annual inflation just below 2 percent over the medium term. It monitors inflation expectations to see if they are anchored around its target.
"Brighter sentiment will not prompt the ECB to make a fast exit from its very expansionary monetary policy," said Christoph Weil, economist at Commerzbank.
"Only when it is clear that the euro zone economy is growing on a lasting basis again will it gradually tighten the rein. We believe the ECB will not make the first rate hike until summer 2010," he said.
(Reporting by Jan Strupczewski, editing by Dale Hudson/Ruth Pitchford)
((jan.strupczewski@reuters.com; +32-2-287 6837; Reuters messaging: jan.strupczewski.reuters.com@reuters.net))