Although consumer demand remains depressed, the strong manufacturing number could dampen expectations of interest rate cuts aimed at helping boost growth after Africa's economic powerhouse emerged from its first recession in nearly 2 decades late last year.

But this is unlikely to silence President Jacob Zuma's labor union and communist allies, who say lending rates remain too high, hitting hardest millions of South Africans still mired in poverty nearly 16 years after the advent of democracy.

Statistics South Africa said on Thursday manufacturing output surged to 3.2 percent year-on-year in volume terms in December compared with a revised 4.6 percent contraction in November, outpacing economists' forecasts of a 0.9 percent increase.

Compared with November, factory production in volume terms rose by a seasonally-adjusted 3.0 percent in December. Output was up 3.3 percent in the three months to December compared with the previous three months, also on a seasonally-adjusted basis.

The data comes after the latest purchasing managers' index rose to a seasonally-adjusted 53.6 points in January, its sixth straight gain after wallowing below the key 50.0 level for 18 months.

"This is one more arrow in the right direction indicating that the economy is in the recovery phase. In that sense, one could say the positive number could argue against further monetary policy loosening," said KADD Capital economist Elize Kruger.

"The sector is starting to recover and we could start to see some job-creation on that side, which could pull up the overall demand in the economy." Despite 500 basis points of interest rate cuts between December 2008 and August last year, demand remains weak as consumers grapple with the aftermath of the recession, which slashed nearly 900,000 million jobs last year.

The hemorrhaging of jobs halted in the fourth quarter of last year, but Zuma's government remains under pressure to honor election promises to drastically reduce unemployment, currently at just under 25 percent of the labor force.

But while life remains bleak for the majority of South Africans, the strong data for manufacturing, which accounts for about 14 percent of GDP, supports the argument that on paper at least the central bank might have done enough to support growth.

Annualized GDP for the fourth quarter of last year is likely to far surpass the 0.9 percent expansion recorded in Q3, after three consecutive quarters of expansion, analysts say.

"It looks increasingly likely that the fourth quarter GDP number will exceed 4 percent," said Andre Roux, head of fixed income at Investec Asset Management.

"In the face of increasing evidence that the recovery is gaining traction, the prospect of further rate cuts is diminishing."