WASHINGTON (Reuters) - U.S. industrial output advanced at its strongest pace in eight months in July as auto production surged in a bullish signal for third-quarter economic growth.

Industrial production shot up 0.6 percent last month after a downwardly revised increase of 0.1 percent in June, the Federal Reserve said on Friday. Economists polled by Reuters had looked for a gain of just 0.3 percent last month.

The gain in output reflected a 0.8 percent increase in factory production that was spurred by 10.6 percent surge in motor vehicle output that more than offset a June decline.

Mining production edged up 0.2 percent, while utilities production fell 1.0 percent.

The step up in overall production pushed the percentage of industrial capacity in use up to 78.0 percent in July, in line with forecasts, from a downwardly revised 77.7 percent in June.

Capacity utilization in the factory sector rose to 76.2 percent last month, its highest level since December, from a revised 75.7 percent in June.

(Reporting by Timothy Ahmann; Editing by Meredith Mazzilli)