(Adds industrial output data; updates markets)

* Consumer prices rise 0.4 pct, largest rise in 10 months

* Gasoline accounts for more than 80 pct of CPI rise

* Core CPI muted, showing lack of broad price pressure

* Industrial output flat, but manufacturing edges higher

By Lucia Mutikani

WASHINGTON, March 16 (Reuters) - U.S. consumer prices rose by the most in 10 months in February as the cost of gasoline spiked, but there was little sign that underlying inflation pressures were building up.

Separate data on Friday showed factory output edged higher last month, despite a fallback in auto production. However, overall industrial output was flat, held back by a second straight monthly decline in mining activity.

The Labor Department said on Friday the Consumer Price Index increased 0.4 percent after advancing 0.2 percent in January. Gasoline accounted for more than 80 percent of the rise.

Outside the volatile food and energy categories, inflation pressures were generally contained. The core CPI edged up 0.1 percent after gaining 0.2 percent in January.

"The message here is we continue to have the complete absence of price pressures given the slack in the economy," said Anthony Karydakis, chief U.S. economist at Commerzbank in New York.

U.S. government debt prices extended losses after the data. The dollar fell against the euro and pared gains against the yen. U.S. stocks opened higher.

In a separate report, the Federal Reserve said production at the nation's mines, factories and utilities held steady last month after an upwardly revised gain of 0.4 percent in January.

Manufacturing output rose 0.3 percent, even as automakers cut production by 1.1 percent after two big monthly gains. Carmakers had raised production to meet demand that had been pent up by a lack of popular models.

Mining output slid sharply for a second straight month, partly reflecting a drop in natural gas extraction. Demand for natural gas has fallen sharply due to an unusually warm winter.

Utility production, which plummeted in both December and January, was flat.

INFLATION RISE JUST TEMPORARY?

The Federal Reserve said on Tuesday that the recent spike in energy costs would likely push up inflation temporarily. Over the medium-term, inflation was likely to run at or below its 2 percent target, it said.

While the U.S. central bank reiterated its expectation that overnight interest rates would remain near zero until at least through late 2014, it offered no clues on whether it would launch a third round of bond buying to stimulate the recovery.

A stream of relatively upbeat economic data has raised inflation expectations in the bond market, although they fell back a bit after the CPI report. The 10-year breakeven rate - the gap between the yields on 10-year Treasury Inflation-Protected Securities and regular 10-year Treasuries - touched 2.40 percent early Friday, its highest level since last August.

Last month, gasoline prices soared 6 percent, the largest increase since December 2010. They had risen 0.9 percent in January.

Although surging gasoline prices are a strain on consumers, they have so far not caused a sharp pullback in spending, thanks to a strengthening jobs market. But salaries are not keeping up with rising inflation.

Average weekly earnings, adjusted for inflation, fell 0.3 percent last month after slipping 0.1 percent in January, the Commerce Department said. Compared to February last year, weekly earnings were down 0.4 percent.

But there is some relief for households. Food prices were flat last month after rising 0.2 percent in January. It was the first time since July 2010 that food prices had not risen.

Overall consumer prices rose 2.9 percent year-on-year after increasing by the same margin in January.

Core consumer prices last month were restrained by the cost of apparel, which fell 0.9 percent - the most since July 2006. There were also declines in the prices of tobacco, airline tickets and used cars and trucks.

But new motor vehicle prices rose 0.6 percent after being flat in January.

Owners' equivalent rent rose only 0.1 percent last month after increasing 0.2 percent the prior month. Rents have risen as Americans have moved away from homeownership in the face of persistent declines in house prices.

In the 12 months to February, the core CPI increased 2.2 percent after rising 2.3 percent in January. This measure has rebounded from a record low of 0.6 percent in October. (Additional reporting by Mark Felsenthal; Editing by Andrea Ricci)