Mexico industrial production revives in September

* Mexican industrial output 0.9 percent vs poll 0.22 percent

* Reverses August drop that was biggest in three years

* No implication for interest rates seen

By Alexandra Alper and Krista Hughes

MEXICO CITY, Nov 12 (Reuters) - Mexico's industrial output rose more than expected in September, as factories in Latin America's No. 2 economy gained steam in line with their U.S. counterparts.

Growth in industrial production picked up to a seasonally adjusted 0.9 percent from a 0.8 percent contraction in August, which was the biggest fall in three years, according to revised numbers released by the National Statistics Agency on Monday.

September's month-over-month number also beat expectations for a 0.22 percent expansion expected in a Reuters poll of analysts and was driven by a 1.6 percent rise in manufacturing. The mining sector notched a fall of 1.55 percent.

But output compared with that of September 2011 rose a lukewarm 2.4 percent, the slowest growth since April 2011. It came in below the 2.95 percent increase expected in the poll and the downwardly revised 3.4 percent expansion in August.

"Industry is probably growing, although at a slightly weak pace," said David Rees, an emerging markets economist at Capital Economics in London, who cautioned against reading too much doom and gloom into the annual figure.

"Even though it has slowed to about 2.5 percent, that is still pretty good compared to most other countries," Rees said. "We would expect Mexican industry to keep doing quite well but not so outstandingly."

The month-to-month expansion was in line with a pickup in the United States, where manufacturing activity rose in September for the first time since May.

U.S. factory activity rose further in October as new orders improved. Economists said increases in Mexican auto production and exports last month should also buoy activity south of the border.

Mexico sends nearly 80 percent of its exports to the United States, and its factories operate nearly in lock step with their counterparts north of the border.ž

NO RATE IMPLICATIONS

The figures are unlikely to change the central bank's view of slowing domestic growth coupled with a worrying rise in inflation, which has overshot the central bank's 4 percent ceiling for the last five months.

Interest rates have been held at 4.5 percent since mid-2009 and although policymakers have said they may increase soon if inflation does not show a sustained downward trend, markets are not pricing in a hike until mid-2014.

In a presentation to an investors' forum, Banco de Mexico board member Manuel Sanchez said sustained high inflation could lead to a rise in inflation expectations and the erosion of the central bank's credibility in controlling inflation at around 3 percent, its long-term target.

"A diversion in inflation from the (3 percent) objective for a prolonged period could generate pernicious effects," Sanchez said, according to a copy of the presentation published on the central bank's website. "For those reasons, monetary policy must act in a timely way."

Sanchez also said an inflow of foreign investment had not lead to a sustained rise in the peso which could have slowed exports, a key driver of growth.