WRAPUP 1-Stimulus boost fading in Japan, China still strong

* Japan factory output growth slows as stimulus impact wanes

* China output still strong, new export orders up for 4th mth

* Australia retail sales beat forecasts, may hasten rate hike

* New Zealand business confidence climbs to decade high

* Differing data highlight fragility, patchiness of recovery

TOKYO/BEIJING, Sept 30 - Manufacturing activity powered ahead in Japan and China in September, providing fresh evidence of a global recovery, but other data from Tokyo showed worrisome signs that the impact of massive government stimulus spending may be starting to fade.

Japanese manufacturing grew at its fastest pace in three years, with expanding new orders at home and abroad, while factories in China cranked up production for the sixth straight month, private activity indexes showed.

Elsewhere, stronger-than-expected retail sales in Australia added to market expectations that its central bank could start to raise interest rates as early as November as the economy regains momentum, while business confidence in New Zealand climbed to its strongest level in a decade.

A purchasing managers' index on China showed a 4 trillion yuan ($585 billion) government stimulus programme and ultra-loose growth-supportive policy continued to bolster the domestic economy in September, while global demand for Asian goods slowly recovered.

But signals were far more mixed for Japan, the world's second-largest economy.

The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to 54.5 in September, from 53.6 in August. It remained above the 50 threshold that separates contraction from expansion for the third month in a row.

Official industrial output data for August, however, fueled fears that a boost from government stimulus spending is starting to wane before a viable, broad-based recovery is in place.

Output rose 1.8 percent in August from July, the sixth straight month of gains. But it was smaller than a 2.1 percent gain in July and a 1.9 percent rise that had been forecast by economists polled by Reuters.

In addition, manufacturers expect a further slowdown in September, the output report said.

"The effect of government stimulus is beginning to fade. The automobile sector has been buoyed by stimulus and tax breaks, and the benefits have spread broadly to other sectors, but that isn't going to last forever," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Output has recovered sharply but will gradually return to a natural level of growth and could briefly turn negative. It will sustain a gradual uptrend, but the outlook is patchy."

Japan emerged from recession in April-June but growth was slower than the government initially estimated as inventories fell more than early data had shown.

CHINA, AUSTRALIAN DATA MORE BULLISH

In China, manufacturers hired workers at the fastest pace in 25 months in September in response to a surge in business.

HSBC's China Purchasing Managers' Index (PMI) showed factory output expanded for a sixth straight month. At 55.0, the reading was little changed from August's 16-month high of 55.1.

"Although the headline PMI remained broadly unchanged from the previous month, there was a marked expansion of manufacturing employment in September," Qu Hongbin, chief China economist with HSBC in Hong Kong, said in a statement.

New orders continued to grow quickly, signalling that the recovery in demand from both domestic and external sources was on track, Qu added. Export orders increased at their second-fastest rate in 27 months, while overall new orders were even stronger.

In Australia, retail sales for August climbed 0.9 percent, nearly twice as much as had been expected, while personal borrowing, such as on credit cards, rose for the first time in 11 months.

Australian interest rates will need to be raised in a "timely" way as demand picks up and record-low interest rates threaten to fuel inflation and create economic imbalances, the country's top central banker said on Monday.