* July output gain largely due to temporary factors
* Services slipped, but expected to keep improving
* Focus on trade data on Thursday (Adds new analyst comment, government statement)
By Christine Kim and Cynthia Kim
SEOUL, Aug 31 (Reuters) - South Korea's industrial output unexpectedly grew in July but the improvement was mainly due to temporary factors, spurring investors to hone in on trade data out on Thursday for further clues on the health of the economy.
In monthly terms, industrial output rose 1.4 percent in July on a seasonally adjusted basis as production of electronic components and cars boosted activity, data showed on Wednesday.
The median forecast in a Reuters survey of analysts was for output to decline 0.6 percent from June. June's reading was revised down to minus 0.4 percent from minus 0.2 percent estimated earlier.
"We think the bounces in confidence and in IP growth are noise rather than signal and that IP growth remains essentially flat and services are growing around 3 percent," said Tim Condon, economist at ING.
"If IP and services remain at their July level in the remainder of the quarter, we estimate third-quarter (economic) growth at 3.0 percent."
Asia's fourth-largest economy expanded by 3.2 percent in second quarter in annual terms.
Improving exports, albeit at a slow pace, also aided production in July, highlighting the importance of shipments to Asia's fourth-largest economy.
The same Reuters poll has projected a 0.6 percent rise for August exports, which would be the first gain after 19 months of falls.
A boost in liquid crystal display exports thanks to the Olympic Games helped activity, a finance ministry statement said. Electronic parts production rose 6.4 percent on-month in July while car output gained 3.7 percent over the period.
On an annual basis, industrial output gained 1.6 percent, much more than expected and improving from a revised 0.8 percent increase from June.
The average factory operation rate in July was 73.8 percent, a 4-month high.
Meanwhile, service sector output declined 0.7 percent from a month earlier, slipping from a 1.0 percent gain in June and breaking a five-month rising run.
It was the first and worst fall since a 1.2 percent drop in January this year, but the finance ministry official said the decline was due to base effects and services were expected to keep improving.
A gauge of South Korean manufacturers' sentiment over future business conditions rose to its highest in a year-and-a-half for September, a central bank survey showed earlier on Wednesday, as exports prospects brightened from the previous month.
(Reporting by Cynthia Kim and Christine Kim; Additional reporting by Dahee Kim; Editing by Richard Pullin)