(Adds details, reaction)
By Anna Willard
PARIS, Jan 28 (Reuters) - French January consumer confidence improved to its best level since April, spurring hopes that the economic downturn has stabilised, but industrial companies continued to feel pessimistic about the months ahead.
Consumer morale registered a reading of -41 in January, national statistics office INSEE said on Wednesday, better than the consensus forecast of -45, and following -44 in December.
The report follows better than expected German corporate and business sentiment and improvements in French data on business confidence and private sector activity.
"When you add up the consumer confidence and what we have seen in the (German) Ifo etc, it does indeed confirm that we saw the worst in terms of growth in the last quarter of 2008," said Olivier Gasnier, economist at Societe Generale.
"We will have further falls in GDP, notably in the first quarter, but not at the pace we saw in the fourth quarter of last year."
Analysts expect the euro zone's second largest economy to have contracted 0.9 percent in the fourth quarter of 2008 before shrinking 0.6 percent in the first three months of this year.
Economists said the latest reports could make the ECB more reluctant to make steep cuts to interest rates.
"We think the ECB will increase its resistance to cutting to much lower levels," RBS economist Jacques Cailloux said.
The ECB cut interest rates to by half a percentage point to 2.0 percent earlier this month, but President Jean-Claude Trichet said he was not thinking about adopting a zero rate policy.
DEMAND PLUMMETS
However, a separate report from INSEE on Wednesday showed that overall and foreign demand for industrial goods fell markedly in the fourth quarter and the outlook was gloomy.
"Demand will continue to fall in the first quarter of 2009," the survey said.
Overall demand in the manufacturing industry from the previous quarter fell to -49 in January from -23 in October. Expectations for the next quarter sank to -42 from -30.
"The slight improvement on consumer confidence is a relief. But we must keep in mind that one report is not a trend and we are at the mercy of a downward correction in February, especially if the social climate deteriorates," said Xerfi economist Alexander Law.
President Nicolas Sarkozy unveiled a 26 billion euro ($34.3 billion) stimulus plan last year to shield the economy from the financial crisis mostly through new business and public investments.
It included a subsidy to encourage new car sales and he is also expected to provide between 5 and 6 billion euros to help struggling car makers.
The government has also made two tranches of 10.5 billion euros available to help banks, including up to 5 billion euros of state-backed bank loans to help European planemaker Airbus.
But French people complain that Sarkozy has not done enough to help consumers and thousands are expected to join protests on Thursday to demand steps to put money in consumers' pockets.
Prime Minister Francois Fillon defended the government's measures on Tuesday, saying: "Purchasing power depends firstly on saving French jobs."
Unemployment is expected to rise sharply this year which could in turn hurt consumer confidence.
To see details of France's consumer confidence, click on [ID:nPAB004628]. For more on the quarterly industrial survey, click on [ID:nPAB004627]. ($1=.7573 Euro) (Additional reporting by Francois Murphy, Tamora Vidaillet, Sophie Hardach and Veronique Tison; Editing by Toby Chopra)