UPDATE 2-China power output drops 7 pct from Aug record

* Sept yr/yr growth quickens to 9.5 pct due weak base effect

* Higher thermal plant output offsets dip in hydropower

BEIJING, Oct 22 - China's power generation in September fell 7 percent from a record high in August, but year-on-year growth quickened to 9.5 percent, the fastest in 16 months, flattered by the comparison to last year's weakened base.

Power generation has picked up in the past few months as electricity demand gradually recovers in the world's third largest economy, which has been given a boost by government stimulus spending.

Analysts say the rate of year-on-year improvement will be exaggerated in the months ahead because of the weak base effect caused by the sharp economic slowdown in the fourth quarter of 2008, when a global recession was taking hold.

Last month's electricity output was 320.33 billion kilowatt hours, versus a record level of 344.32 billion kwh in August, data from the National Bureau of Statistics showed on Thursday. The growth rate was in line with figures reported last week

Hotter-than-usual weather last month that drove up use of air conditioners also contributed to the growth.

(For a graphic of China's power output history: http://graphics.thomsonreuters.com/109/CN_PWRV1009.gif)

Output from thermal power plants, consisting mostly of coal-fired plants, rose 12.3 percent last month from the year-ago level, while production at hydropower plants fell 3.7 percent percent. Nuclear power output rose 12 percent.

For the first 9 months, power output gained 1.9 percent from the year-ago level, with thermal power output flat from the year-earlier level, the data showed.

The September growth comes on top of a low base a year earlier, when output sank to a multi-year low as a slowing economy undermined demand while coal shortages and low tariffs cut generation.

China has set the first power transmission rate on a generator's direct power sale to an end-user in a new pilot scheme, raising the hopes of some industry users for cheaper electricity and thus a possible small boost to demand.