INDIA'S industrial output rose 10.4 percent in August from a year earlier, its biggest gain since October 2007, boosting optimism that Asia's third-biggest economy is rebounding.

Yesterday's figures showed manufacturing output alone rose 10.2 percent, led by increasing production of consumer durables - which surged 22.3 percent - in advance of India's gift-buying holiday season.

"This growth has surpassed the industry's expectations," said Soumendra Dash, chief economist at Care Ltd, a research and ratings agency based in Mumbai. "We get a strong indication that India's economy is recovering very fast."

Industrial production has been rising since April, except for a fallback in July, according to the Ministry of Statistics.

Dash said he had been "doubtful" whether the upward trend in industrial production was sustainable. "With this figure, we feel that yes, it's sustainable," he said.

The Ministry of Statistics also said July industrial production rose 7.2 percent, more than its initial estimate of 6.8 percent.

For the April-August period, industrial production is 5.8 percent higher than during the same period last year.

The strong numbers have reignited debate as to when the central bank will start raising interest rates. Inflation, while still low, is on the rise, and some commentators believe the solidifying trend in industrial output will encourage the Reserve Bank of India to raise policy rates sooner rather than later.

Most economists expect the bank to put up rates sometime in the first half of next year.