BUDAPEST, Nov 5 (Reuters) - Hungary's industrial output fell by less than expected in September and some key sectors showed signs of improvement, suggesting a modest recovery may be underway, the Central Statistics Office, KSH said.

Output fell by an annual 15.0 percent based on unadjusted data after a 19.8 percent decline in August, and the drop was slower than analysts' expectation for a 17.5 percent decline.

'There are signs of real growth in this figure,' KSH statistician Ildiko Miko said. 'In the electrical equipment manufacturing sector, there was real year-on-year growth.'

'It is plausible that the baseline figure will show further improvement in the future,' Miko said, adding that from October, significantly lower base figures will also help the improvement.

Industrial output has been falling steeply for months in central Europe's heavily export-reliant economies as the global crisis hit their key markets in western Europe.

Hungary's positive surprise comes after Poland and the Czech Republic both reported slightly better-than-expected September output figures.

'As for growth returning, I would not extrapolate from this one month. But because the auto industry represents (a 20 percent) weight (in the figure), this is indeed significant.'

Analysts said the improvement was reassuring but should be evaluated with caution.

'Though the figures were better than our forecast we think it is too early to state that a sustainable recovery is on the way,' MKB analyst Zsolt Kondrat said.

'Though the fall of production came to a halt earlier this year, stable growth is not yet evident, and due to the volatility of monthly figures one is better be cautious not to read too much into any one month of data,' Kondrat added.

Other said that more improvement should be on the cards in the months ahead and base figures should also help the recovery.

'We expect a continued moderate slowdown in the rate of decline during the next few months as base effects take hold and the European cycle recovers (as) the supply of Hungarian-made parts into Western European manufacturing processes should gradually rise,' CIB Bank Gyorgy Barta said.

'The industrial production data is dire nonetheless and therefore still calls for more rate cuts by the central bank,' Barta added.

The central bank has reduced rates by a combined 250 basis points to 7.00 percent over the past four months and analysts expect the rate to decline to 5.5 percent by the middle of next year.

(Reporting by Marton Dunai/Balazs Koranyi; Editing by Patrick Graham) Keywords: HUNGARY OUTPUT/

(marton.dunai@reuters.com; +36 1 327 4742; Reuters Messaging: marton.dunai.reuters.com@reuters.net)

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