By Koh Gui Qing

SINGAPORE, Oct 24 (Reuters) - Singapore's factory output rose more than expected in September as drug production recovered, but the rebound is likely to be brief as firms cut back in coming months on fears of a global recession.

Factory output rose 7 percent in September after seasonal adjustments from August, beating even the most bullish of forecasts. Five economists polled had expected production to rise a median 2.9 percent.

"On the surface, it's encouraging because it's a rebound. It's a small positive note to end a rather lousy quarter," said
Song Seng Wun, an economist at CIMB. "Given the economic outlook, manufacturing performance will continue to be uncertain."

The Singapore dollar strengthened slightly to 1.5043 versus the U.S. dollar by 0604 GMT, from 1.5072 before the
data.

Manufacturing activity is set to slow across Asia this year as the unfolding financial crisis threatens to push the global economy into a recession.

Many Asian countries, including Singapore, export the bulk of their factory output, and count the United States and Europe as their key markets.

But the financial crisis has hurt demand in the two markets, while demand in emerging markets are not as strong as
hoped.

A Reuters poll showed earlier this month Japanese manufacturers' business sentiment hit a six-year low in October, while data for China's annual factory output implied annual growth for September was well below August's 12.8 percent, the slowest in six years.

Singapore's manufacturing accounted for about a quarter of its $152 billion economy in 2007. A slump in the sector,alongside falling exports, dragged the economy into a recession.

Singapore's gross domestic product fell an annualised 6.3 percent in the third quarter after seasonal adjustments, the
second consecutive quarter of contraction, preliminary data showed.

The recession prompted Singapore's central bank to ease monetary policy in October for the first time since 2003,
signalling to investors the risks to the economy had turned from growth to inflation, which hit a 26-year high in
Singapore.

"It's an encouraging sign that things are not collapsing internally, but people remain worried with the global outlook,"
said David Cohen, an economist at Action Economics.

Drug production, which make up about a fifth of Singapore's total output, jumped 44.4 percent in September from a year ago, after falling 36.2 percent and 69.6 percent respectively in August and July.

The persistent weakness in drug output caused overall production to fall in four of the last six months. Economists
say demand for pricier drugs has weakened as consumers, bracing for an economic slowdown, cut medical spending.

Electronics output, which accounts for about a third of output, dropped 14.6 percent compared to a year earlier.
Singapore's manufacturing sector shrank 11.5 percent in the third quarter, advance official estimates showed, more than double the 4.9 percent contraction seen in the second quarter.