WRAPUP 1-Brazil consumers lift economy; rate hike seen

* Robust consumer spending helps speed up Brazil recovery

* Rate-hike expectations boosted by strong retail sales

* Central bank could hold off until April

By Stuart Grudgings

RIO DE JANEIRO, March 11 (BestGrowthStock) – Buoyant Brazilian
consumers helped Latin America’s biggest economy speed up its
recovery in late 2009, lifting expectations the central bank
will raise interest rates as early as next week.

Brazil’s economy grew 2 percent in the fourth quarter of
2009 from the previous three months, accelerating from 1.7
percent expansion in the third quarter, the government’s IBGE
statistics agency said on Thursday.

That was in line with economists’ expectations and
underlined the country’s status as an engine of global growth.

The data showed Brazil is on a “vigorous growth path,” with
confidence rebounding, central bank chief Henrique Meirelles
said in a statement. For more see [ID:nSPG002792].

Figures released shortly afterward showed a strong
2.7-percent rise in retail sales in January from the previous
month, leading traders to price in a higher chance of a
near-term hike in the country’s key interest rate.

“These new figures imply a stronger recovery of economic
activity than previously estimated,” Citigroup said in a note
to clients, saying that it expected the central bank to hike
interest rates by 50 basis points at its March 16-17 meeting.

Yields on interest rate futures contracts (0#DIJ:: ) ticked
higher, reflecting increased rate-hike expectations, with the
contract due April 2010 (DIJJ0: ) rising to 8.804 percent from
8.765 percent.

A 6.6-percent jump in fourth-quarter capital spending and a
1.9-percent gain in household spending over the previous
quarter helped drive the GDP rise in Brazil, which has emerged
steadily from a brief recession that ended in early 2009.

RATE-HIKE TIMING

Strong spending by Brazilian consumers has been
contributing to worries about rising inflation, a key concern
for the central bank as it considers when to raise the
country’s key interest rate from a record low of 8.75 percent.

“It’s all consumption driven, which was expected but which
is the main concern for the central bank,” said Pedro Tuesta,
senior Latin America economist at research firm 4Cast Inc in
Washington.

“Surely, investment is growing, but investment tends to be
very volatile. Consumption had a bigger impact on the GDP and
has been very steady.”

Other analysts believe the central bank will hold off from
raising rates until April.

“I am not sure that retail sales will continue to expand at
rates close to 2.0 percent,” wrote Benito Berber of RBS
Securities. He said that consumer spending is likely to fade as
government tax breaks that helped jump-start the economy in
last year’s recession expire.

The effects of the crisis weighed on the economy in 2009 as
GDP shrank 0.2 percent from the previous year, but that still
leaves it as one of the world’s best-performing economies in
the year following the global financial meltdown.

Brazil’s economy grew 4.3 percent year-on-year (BRGDPY=ECI: )
in the fourth quarter, near the 4.4 percent jump that was the
median Reuters poll forecast. Estimates for year-on-year growth
ranged from 2.9 percent to 6.0 percent.

Growth in the third quarter of last year was revised up to
1.7 percent from 1.3 percent.

“Activity continues strong. There’s a recovery trajectory
in the fourth quarter over the third,” said Flavio Serrano,
senior economist at BES Investimento.

“The central bank will raise rates, and this will slow the
impetus a bit, but only in the second half of the year.”

The GDP data follows January industrial output data and
lower-than-expected February inflation data that eased fears
that the economy was overheating.

Brazil’s Planning Minister Paulo Bernardo said on Wednesday
the country’s economy will grow close to 6 percent in 2010
after stagnating last year.

The U.S economy is expected to expand 2.9 percent in 2010,
while Japan and the euro zone plus Britain are seen growing 1.6
and 1.2 percent respectively, according to economists in latest
Reuters economic outlook

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(Additional reporting by Luciana Lopez, Elzio Barreto, Reese
Ewing and Rodrigo Viga Gaier; Editing by Andrew Hay)

WRAPUP 1-Brazil consumers lift economy; rate hike seen