* Nationwide Oct core CPI falls 0.4 pct yr/yr, matches f'cast * BOJ's price index shows Oct prices up 0.3 pct yr/yr * Some analysts see prices rebound early next year * Japan eyes only modest spending rise-budget outline (Adds BOJ index, detail on fiscal spending) By Leika Kihara TOKYO, Nov 25 (Reuters) - Japan's core consumer prices marked their eighth straight month of annual declines in October, illustrating the sheer scale of the central bank's struggle to beat deflation and stagnant growth with diminishing policy options.
The data will keep policymakers under pressure to do more to stimulate the economy, with fiscal spending likely the more preferred option as three years of aggressive easing by the Bank of Japan failed to accelerate inflation to its 2 percent target.
With downward pressure from energy price declines easing and the yen's recent falls seen pushing up import costs, however, some analysts expect consumer prices to rebound early next year.
The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, fell 0.4 percent in October from a year earlier after a 0.5 percent drop in September, matching a median market forecast, government data showed on Friday.
While falling gasoline and electricity prices continued to drag down inflation, nearly 60 percent of items making up the index saw prices rise, the data showed.
"We still think that underlying inflation will fall a touch further in coming months in response to the sharp falls in import prices in previous months," said Marcel Thieliant, senior Japan economist at Capital Economics.
"However, the output gap (the difference between the economy's potential GDP and actual GDP) has narrowed and we expect it to rise further in coming months, so price pressures should strengthen again before long. What's more, the yen has weakened sharply against the dollar recently. We think that underlying inflation will reach a bottom in the first quarter of next year." A separate index compiled by the BOJ, which strips out the effect of energy and fresh food costs, showed inflation hit 0.3 percent in October, slightly up from a three-year low of 0.2 percent marked in September.
Japan's economy expanded for a third straight quarter in the July-September quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable recovery.
Data due out next week will likely show an uninspiring picture of the recovery with analysts polled by Reuters predicting roughly flat growth in factory output and a decline in retail sales in October.