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By Tamora Vidaillet
PARIS, April 10 (Reuters) - Factory output in France fell less than expected in February, according to data on Friday which suggested that production may be stabilising and the economy may not endure as much pain as some of its neighbours.
Output fell 0.5 percent from the previous month, far less than economists' consensus forecast of a 1.1 percent drop and a 3.9 percent drop in January. In February it dropped 13.5 percent on the year.
The performance of the euro zone's second-biggest economy stood out after Germany on Thursday reported a 23.2 percent annual fall in output, its steepest loss since reunification. Italy also suffered record falls in industrial production.
French statistics office INSEE revised the drop in January output from 3.1 percent. However, some economists said February's data was consistent with signs from economic surveys that the worst may be over for production following massive destocking late last year.
"French industrial output has stabilised at a low level but if you compare it with Germany where they saw a 23.2 percent year-on-year fall, the French data is not as weak," said Alexander Law, an economist with researchers Xerfi.
"That's because destocking began immediately in France when demand started to drop. There was massive destocking and now it really can't go much lower," he said.
In a survey issued this week, the central bank said output had fallen across all sectors in March, but that the pace of decline had been similar to February's.
According to the Markit/CDAF manufacturing purchasing managers' index, French manufacturing activity probably fell at a more modest pace in March than in the previous month.
NO REASON TO REJOICE
Some economists still cautioned about jumping to conclusions on the outlook for production given depressed global demand.
"It could be an anomaly rather than a radical change in the trend," said Philippe Waechter from Natixis Asset Management.
Friday's data showed an 11.6 percent monthly rebound in coke-making and refining following a 15 percent dive in January.
Production for the auto industry dropped 5.6 percent but output of boats, planes and trains grew by 3.2 percent.
In a separate statement, INSEE said consumer prices rose 0.2 percent on the month in France, putting inflation at its lowest levels in years, a sign welcomed by certain analysts.
"This should energise household consumption and allow it to resist," said Cyril Blesson from Seeds Finance.
Despite some grounds for measured optimism, trade numbers out of France this week showed that the deficit had widened in February, with both exports and imports taking a further hit.
While consumption has held up relatively well in France in recent months, economists say rapidly rising unemployment in the next few months could sap that cornerstone of growth.
A Reuters poll this week showed that the French economy is expected to contract 1.2 percent between January and March after shrinking 1.1 percent in the fourth quarter of last year.
Recession is likely to drag on well into the second and third quarters before headline quarterly gross domestic product (GDP) starts growing in late 2009 at the earliest, if government stimulus measures work..
With the government boosting spending as it implements steps to stimulate the economy, the budget deficit hit 29.9 billion euros in February, compared with 22.7 billion euros in the same period last year, the Budget Ministry said. (Additional reporting by Estelle Shirbon and Sophie Hardach; editing by David Stamp)