BEIJING, April 22 (Reuters) - Chinese industry is still in deep trouble, struggling with overcapacity and cash flow strains, despite some signs of an economic recovery, a senior official said on Wednesday.

China's industrial output rose 8.3 percent in March from a year earlier, a pick-up from 3.8 percent in the first two months of this year, suggesting that the economy had bottomed out.

But Lou Qinjian, deputy minister of industry and information technology, told a forum that the economic foundation was still weak.

"We can not easily conclude that the economy has bottomed out. The industrial situation remains serious," he cautioned.

Lou said overcapacity, including in the steel and auto sectors, was intensifying because of weak domestic and global demand.

He said companies, especially smaller ones, still faced acute funding shortfalls because of rising inventories. Beijing has tried to address their financing difficulties by leaning on banks to give more credit to small- and medium-sized enterprises.

"Although the government has done a lot of work, the issue has not been fundamentally resolved," he said.

Falling prices and narrower profit margins were additional concerns, he said.

Chinese industrial firms earned a combined 219 billion yuan ($48.3 billion) in profits in the first two months, down 37.3 percent from a year earlier, and nine out of the 12 industries tracked by the National Bureau of Statistics suffered falling profits.

Lou said Beijing's support measures since late last year, including plans to stimulate the development of 10 key industries, had started to work and that it was too early to relax them.

"China needs to maintain support for industry," he said.