South Korea's industrial output rose at the fastest pace in three months in September on strong demand for semiconductors and autos, a government report showed Friday, fueling expectations that the economic recovery is gaining steam.

According to the report by Statistics Korea, production in the mining, manufacturing, gas and electricity industries jumped 1.9 percent on-month in September, accelerating from a 0.2 percent on-month gain in August. The increase marks the second month in a row that output rose from the month before and the sharpest gain since 2.4 percent tallied for June.

Compared with a year earlier, industrial production shot up 2.4 percent.

"South Korea's exports were down in September, but overseas shipments of mobile devices like system chips actually rose that propped up production," said Choi Jung-su, director of the short-term industrial statistics division.

"Car sales were spurred by the popularity of new models and excise tax cuts implemented by the government to fuel domestic consumption."

In September, exports from Asia's fourth-largest economy fell 8.4 percent on-year to US$43.48 billion.

Output of semiconductors and automobiles shot up 17.2 percent and 5 percent, respectively, compared with the previous month, while machinery and transportation equipment sectors backtracked 4.3 percent and 10.6 percent from the month before.

Production in the service sector, a key part of the economy, also expanded 1.2 percent from the previous month and moved up 3.7 percent from a year earlier, the report showed.

The statistical agency said the monthly gain in services was assisted by more output in the wholesale and retail sector that received a boost from the Chuseok holiday that fell on Sept. 27 this year. Chuseok bolsters spending as companies give out bonuses and people buy gifts for family and friends.

Wholesale and retail rose 2.7 percent on-month, while health and welfare operations rose 4.1 percent on considerable state support. Hospitality businesses that took a beating in the wake of the Middle East Respiratory Syndrome outbreak rose 2.8 percent on-month.

First confirmed in late May, the MERS outbreak claimed 37 lives in the country, although no new cases have been reported since July 4.

On the downside, output in private services and real estate sectors lost ground compared to the month before.

Private spending rose 0.5 percent on-month and 5.5 percent from September 2014 on the strength of demand for clothing and consumer electronic goods, with facility investments rising 4.1 percent from August and jumping 7.1 percent on-year.

Construction and machinery investments rose 4.9 percent and 2.4 percent, respectively, from the previous month. Machinery investments were helped by the demand by local carmakers, while construction was buoyed by more civil engineering projects.

For all industries, which includes the service and construction sectors, output rose 2.4 percent from the previous month and surged 4.4 percent from a year earlier.

The latest increase represents the fourth straight month that production numbers rose from a month earlier.

The statistical agency said semiconductors propped up by demand by the release of the latest mobile devices and popularity of new cars pushed up numbers compared with the year before.

It said with the impact of the MERS scare receding, wholesale and retail sectors have made a full recovery, with the service sector also contributing to last month's overall gains.

The finance ministry said after a poor showing earlier in the year, tax cuts for cars and large electronic products are generating demand that is helping the retail and service sectors.

"A rebound in consumption is contributing to better numbers in production, and investment pushed up growth not only for September but for the third quarter as well," it said.

For the coming months, the ministry predicted that things should continue to improve, especially with large scale discount events like Korea Black Friday having fueled consumption.

The ministry, however, said that external uncertainties, like a cooling Chinese economy and market jitters over a U.S. rate hike, require close monitoring because they could pose downside risks. (Yonhap)