Industrial production rose in September and a gauge of manufacturing in New York State hinted at stabilization in October, suggesting the factory sector will keep supporting the economic recovery.

Industrial production rose 0.2 percent last month, in line with expectations, as a gain in manufacturing offset a drop in utility output, a Federal Reserve report showed. August's reading was downwardly revised to show flat output.

Manufacturing production rose 0.4 percent, with consumer durables rising 0.9 percent as production rose for automotive products and home electronics.

Despite signs of a slowdown in global economic growth, U.S. manufacturing output is still expanding at a solid pace, Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a note.

The third quarter turned out to be a lot better than some feared, and the economy has a little momentum going into the fourth.

The New York Fed's Empire State index provided a more mixed picture. The general business conditions index contracted for a fifth month in a row, though the pace moderated slightly and new orders improved.

The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

NO EVIDENCE OF RECESSION

While the pace of growth in manufacturing has slowed in recent months -- and in some regions contracted -- last month's broader national report pointed to a sector that will continue to boost the recovery.

A lot of people have been fearful that we're running into a new recession, and the data don't really show that here, said Scott Brown, chief economist at Raymond James, in St. Petersburg, Florida.

Financial markets were little moved by the data as investors focused on the sovereign debt situation in the euro zone.

The Empire State's business conditions index was up slightly in October at minus 8.48 from minus 8.82. Economists polled by Reuters had expected a reading of minus 4.0.

New orders rose to 0.16 from minus 8.0.

Employment gauges were mixed as the index for the number of employees rose to 3.37 from minus 5.43, but the average employee workweek index fell to minus 4.49 from minus 2.17.

Even so, the outlook for the coming months worsened, with the index of business conditions six months ahead dropping to its lowest level since February 2009 to 6.74 from 13.04 last month.

Graphic - U.S. industrial output, capacity utilization: http://link.reuters.com/geb54s

(Reporting by Leah Schnurr; Additional reporting by Jason Lange; Editing by Jan Paschal)

Manufacturing