"The October headline number came in a lot stronger than expected and was a positive surprise," said Mari Iwashita, chief market economist at SMBC Nikko Securities. The month-on-month rise reversed September's revised 3.3 percent decline, the first drop in six months after Japan's devastating March earthquake and tsunami pounded factory production. The latest figures also beat market expectations of a 1.2 percent increase with the government saying the transport, machinery and chemical sectors contributed most to October's rise. Within specific sectors, output in the transportation sector was up 11.6 percent from September as automakers ramped up vehicle output. On Tuesday, government data showed the nation's retail sales rose for the first time in three months, while household spending was also stronger than expected. The uptick was driven by a near 23 percent jump in auto sales on year, as pent up demand was unplugged after months of falling sales in the wake of the March natural disasters. A government survey of producers forecasts Japan's industrial output to edge down 0.1 percent in November but then rise 2.7 percent in December. Japan fell into a trade deficit in October, reversing a year-earlier surplus, as the eurozone debt crisis and a strong yen weighed on exporters, while record flooding in Thailand pounded the operations of Japanese automakers and electronics firms with plants in the country. Toyota and others withdrew earnings forecasts as they assessed the scale of disruption, which came as Japanese firms were near to restoring output to normal levels at home after the quake-tsunami shattered component supply chains. "The impact of the Thai floods on the auto industry is apparently less than initially feared as far as the October results and the November forecast can tell," Iwashita said. However, Naoki Murakami, chief economist at securities firm Monex, questioned whether producers would meet their December factory forecast given the country's slowing exports. "It is uncertain whether the (December) plan will be achieved," he said. "The impact of the slowing global economy is yet to become obvious but there are risks that production would be weighed down if a European recession affects the rest of the world."