UPDATE 2-Mexican economy contracted 11 pct in May from yr ago

(Adds analyst comment)

MEXICO CITY, July 28 (Reuters) - Mexico's economy shrank sharply in May as the drag from a U.S. recession was compounded by a flu epidemic that hit both exports and tourism, the national statistic agency said on Tuesday.

Economic activity contracted 11.1 percent MXIGDP=ECI from the same month in 2008. That was a steep decline by any standard, but represented an improvement over April's upwardly-revised 12 percent drop.

Mexico has been hit hard by the longest U.S. recession since World War II. Some 80 percent of the country's exports are aimed at the United States.

The U.S. economy has begun showing inklings of stabilization, raising hopes for a possible recovery in Mexico. Still, many analysts worry that, because U.S. demand is unlikely to recover to pre-crisis levels, it could take longer than usual for export-dependent Mexico to feel major benefits.

At the very least, things appear to be deteriorating at a slower clip. Exports fell 27 percent in June compared to the same month a year ago, the third straight month in which the rate of decline eased.

"There is a fair chance that May will mark the bottom of the current real business cycle," said Alberto Ramos, senior economist at Goldman Sachs, in a research note.

Goldman Sachs still sees a severe contraction this year, but forecasts a moderate rebound during the second half of 2009.

Economists polled recently by the central bank forecast Mexico's economy will contract 6.3 percent this year, which would be its sharpest decline since 1932. (Reporting by Pedro Nicolaci da Costa and Jason Lange, Editing by Chizu Nomiyama)