Brazil poised to reach 5 pct growth -Goldman Sachs

* Goldman sees Brazil growth potential at 5 pct a year

* Country urged to become more investment friendly

SAO PAULO Oct 14 (Reuters) - Brazil could grow at 5 percent annually in coming years but must address economic weaknesses, such as the need for more investment friendly policies, Jim O'Neill, head of global economic research at Goldman Sachs, said on Wednesday.

The taming of inflation in Brazil has made it possible for the country to leave behind its economic turmoil and expand consistently, O'Neill said at a briefing with reporters.

"It is possible that Brazil is entering a period where it could grow by more than 5 percent for many years," said O'Neill, who in 2001 coined the term BRIC to describe the combined muscle of the Brazilian, Russian, Indian and Chinese emerging markets. "Brazil is in a very sweet spot."

Yet the government needs to keep inflation in check and draw in investment to hasten that growth.

A number of companies "are thinking about investing in Brazil for the first time ever," he said. "It's really important that the government today and the next government encourage that."

Brazilians will elect a new leader in October 2010 to succeed President Luiz Inacio Lula da Silva, who took office in 2003 and has steered the country through its biggest economic boom in three decades.

Thus far the candidates have presented little divergence from the economic path laid down by Lula and the central bank, which includes aggressive management of the rate of inflation.

The specter of inflation still looms large in Brazil where years of hyperinflation dragged down the economy in the 1980s and early 1990s.

That began changing after the country introduced a new currency in 1994 and adopted an inflation-targeting regime in 1999. The resulting stability helped propel Brazil to its current position as a potential leader on the world stage.

Brazil's benchmark consumer price index has risen 4.34 percent in the 12 months through September, below the government's target.

The country slid into contraction in the fourth quarter of 2008 but resumed growth in the second quarter this year.

"The way Brazil has handled this external shock is a huge testimony of how different Brazil is these days," O'Neill said.

Yet the 72 percent increase so far this year in Brazil's benchmark Bovespa index .BVSP means that Brazilian stocks are no longer quite as attractive as they were at the start of the year.

"I wish I would have invested more in" the index, he joked. Because of the gains in stock prices, investors could find cheaper exposure to the Brazilian market through foreign companies expanding into emerging markets. (Reporting by Luciana Lopez; Editing by Kenneth Barry)