* Mexico auto output expands for third straight month

* Sector expects 30 pct total drop in 2009

Mexican auto production rose in September on a monthly basis for a third consecutive month, suggesting the sector is pulling out of a deep slump.

The Mexican Automotive Industry Association, or AMIA, said automakers produced 146,295 vehicles in September, up 9 percent from August and the highest level since late last year. Production, however, was still down 23 percent year-over-year.

Mexico is a major car producer and sends about 70 percent of its exports to the United States, where auto sales have taken a hit due to a recession.

Mexico's auto exports in September were also up from August and at their highest level since late last year, reaching 117,433 units.

Exports rose despite a 23 percent drop in September U.S. auto sales as showrooms emptied after the government-funded cash for clunkers program ended in August. The program had driven U.S. sales -- and Mexican production -- higher in August from July.

Due to a deep slump through much of 2009, AMIA said it was maintaining its forecast for an overall decline in production and exports of 30 percent for the year.

After shrinking in the first half of the year, Mexico's economy is expected to grow slowly for the rest of 2009, and there are early indications that may be happening.

Consumer confidence and factory sector sentiment both improved in September, and July data showed economic output expanded month over month, though it was still down from the year-ago period. (Writing by Noel Randewich; Editing by Leslie Adler)

Mexico