UPDATE 3-Brisk Brazil rebound could stoke inflation-c.bank

* Yields fall as report sees inflation well-anchored

* 2009 GDP view cut, but inflation seen rising

* Pace of economic growth main inflation risk

* Domestic demand seen as main engine of growth next year (Adds central bank director paragraphs 9, 14-16)

By Guillermo Parra-Bernal and Elzio Barreto

SAO PAULO, Dec 22 (Reuters) - Brazil's central bank said on Tuesday that inflation is likely to remain well-anchored around the government's target next year but warned that strong economic growth could pressure consumer prices.

Policymakers said in their quarterly inflation report that gross domestic product will expand 5.8 percent in 2010, the initial estimate for GDP next year. The forecast is well above the 5 percent estimate by market economists in a weekly central bank survey released on Monday.

The central bank also raised its forecast for inflation next year to 4.6 percent from 4.4 percent, adding that price pressures would limit its choices on rate decisions.

"Central bankers are more comfortable with the scenario, yet they remain vigilant," said Zeina Latif, senior Brazil economist with ING Bank in Sao Paulo.

"Their GDP growth estimates are topping those of most market participants, and inflation seems under control, but risks remain."

Yields on interest rate futures contracts were mostly lower, signaling investors are reducing bets that policymakers will have to raise borrowing costs early next year to fend off inflation.

The yield on the contract due Jan. 2012 DIJF2 dropped 5 basis points to 11.80 percent, while the yield for the July 2011 contract DIJN1 fell to 11.3 percent from 11.34 percent on Monday.

The bank is gradually switching its stance toward one of monitoring the economic recovery after Brazil rapidly exited its first recession in 17 years. Bankers warned that more capital investments are needed to help ease inflationary pressures if consumer demand rebounds briskly.

Investments will likely bounce back to 15.8 percent of GDP next year, the bank said, short of what most economists say is needed to sustain economic growth of 5 percent without stoking inflation.

"The risks gain weight once current inflation rates tend to rise around our target, which does limit the margin of maneuver of monetary policy," the bank said in the inflation report.

The central bank, which uses the IPCA index as a guide when setting interest rates, has a 4.5 percent annual inflation target for 2009 and 2010, plus-or-minus 2 percentage points.

"One risk that has to be monitored is that slack capacity runs out more rapidly than the gradual recovery that has been forecast in the original model," the quarterly report said.

"In other words, the risk is that supply conditions fail to respond properly to an acceleration in the pace of growth in demand," it added.

The bank said that under the so-called market scenario, in which economists forecast the Selic rate to rise to an average 10.58 percent at the end of 2010, inflation ends 2010 at about 4.5 percent, indicating it could hike rates next year.

The bank's economic policy director, Mario Mesquita, gave several clues that policymakers were strongly considering tightening monetary policy to keep prices in check.

"Taking preventive measures is better than remedial measures once an inflationary process is under way, especially because inflation is more persistent in our country," Mesquita said at a news conference. He added that investors should not doubt the bank's determination to keep inflation on target.

"The bank will do its job," he said, adding that it would continue to pursue the center of the inflation target.

Growth should expand 0.2 percent in 2009, far lower than the 0.8 percent growth forecast made in September, the central bank said.

The brisk rebound in Latin America's largest economy will pressure consumer prices, with the benchmark IPCA consumer price index seen rising 4.3 percent this year, up slightly from a 4.2 percent forecast made in September. (Additional reporting by Raymond Colitt in Brasilia; Editing by Dan Grebler)