UPDATE 3-Italy's Pirelli targets Brazil with investments

* Pirelli to invest additional $200 million through 2011

* Sees Brazil sales up 10 percent in 2011 vs 2008

* Opportunity in expanding Brazilian agriculture (Recasts, adds production fall in H1; agri opportunities; byline)

By Peter Murphy

SANTO ANDRE, Brazil, July 2 (Reuters) - Italian tire group Pirelli & C SpA (PECI.MI) will invest around $200 million in Brazil through 2011, betting on a swift and robust rebound in Latin America's largest economy, the company said on Thursday.

The cash would come on top of $100 million it invested last year in Brazil, which supplies most of the company's South American clients and generates about a third of total revenue.

"This is a country with a huge potential for growth, especially when you look at the ratio of inhabitants to cars," Pirelli Group Chairman Marco Tronchetti Provera told reporters at a news event at the company's plant in Santo Andre, one of Brazil's auto manufacturing hubs close to Sao Paulo city.

The new investments will allow for a 20 percent increase in production capacity of tires for cars and motorcycles. The company is also expecting a 10 percent rise in revenues from sales in Brazil by 2011 compared with last year.

Nonetheless, the effects of the global economic downturn caused Pirelli's production in South America to fall 10 percent in the first half of this year compared with the same period in 2008, Latin America chief Guillermo Kelly said.

New car sales in Brazil, one of the few bright spots at the moment for the global auto industry, surged 21.5 percent in June from May and are up 3 percent in the first half of 2009, according to data released on Thursday by the country's dealers' association Fenabrave.

One in two new cars in Brazil is fitted with Pirelli tires, as is almost all of the country's large fleet of motorcycles.

Part of the strong performance in the auto manufacturing sector can be attributed to a tax break the government started in December 2008 to help revive the local economy, which slipped into recession earlier this year, but is already showing signs of recovery.

Brazil's government announced on Monday that it would extend the tax break through the end of the year, meaning that dealers will be able to keep showroom prices lower.

South America accounted for 33 percent of Pirelli's overall sales in 2008, bringing in more than $6 billion in revenue, the company said.

"We want to drive investments, especially in countries where there is desire for growth and development," said Provera.

The shares of Pirelli, which is celebrating its 80th year in Brazil in 2009, fell 0.79 percent on Thursday to 0.251 euros.

Regional chief Kelly said Brazil's growing farming sector could also create demand for tires for agricultural machinery and trucks, especially as some competitors had left that market segment.

Pirelli supplies tires to Fiat SpA (FIA.MI), one of Brazil's top selling carmakers. Fiat's recent acquisition of a stake in U.S. automaker Chrysler could also bring opportunities in the future, Kelly said.

(Additional reporting by Danilo Masoni in Milan; editing by Richard Chang and Andre Grenon)