WRAPUP 1-Brazil industry data eases fears of overheating

* Data shows Jan industry output growing as expected

* Rate of capacity utilization eases slightly

* Interest rate futures lower on industry figures

By Ana Nicolaci da Costa and Alberto Alerigi Jr.

BRASILIA/SAO PAULO, March 4 (Reuters) - Brazil's industrial output surged in January from a year ago, but not as quickly as it did in December, easing concerns Latin America's largest economy may be overheating.

Rising inflation expectations and hawkish comments from Brazil's Central Bank President Henrique Meirelles last week had reinforced bets that the central bank could hike rates as early as March.

But data on Thursday, which also showed a slight moderation in the rate at which manufacturers use up their installed capacity, suggested the economy still had room to grow without stoking inflation.

"The concern was that if the pace of the recovery was too fast, then the closing of the output gap would be faster than the central bank was expecting," said Pedro Tuesta, senior Latin America economist at research firm 4Cast Inc in Washington. He only expects the central bank to raise borrowing costs in April from 8.75 percent now.

"The numbers suggest that the pace is slowing down and that gives time for the bank to analyze what happens with the data and the impact on credit from the reserve requirement increase."

The central bank on Feb. 24 began to unwind some of the measures it took to boost liquidity during the global financial crisis, because it considered the financial system to have more than enough credit. See [ID:nN24177426].

Data on Thursday showed output jumped 16 percent compared with January 2009 BRIOY=ECI, when Brazil's economy stumbled because of the turmoil in global financial markets, statistics agency IBGE said on Thursday. Output expanded in 14 of the 27 industrial sectors tracked by the IBGE.

That matched the 16 percent forecast in a Reuters survey and was slower than the 18.9 percent year-on-year rise in industrial output in December 2009.

Figures from CNI, Brazil's largest lobby group for industrialists, showed the level of factory capacity in the country edged lower to 81.4 percent in January from 81.5 percent in December.

It was higher than the 77.8 percent in January 2009 -- but that was unusually low because of the global financial crisis.

"This shows there is still some room for growth without (inflation) pressures," said Bernardo Wjuniski, analyst at Tendencias consultancy in Sao Paulo, who also expected a rate hike only in April.

Finance Minister Guido Mantega has said he sees no need for an immediate rate hike, reiterating on Wednesday there were no pressures from the demand side and that interest rate future markets could be exaggerating rate hike bets. See [ID:nN01103896].

Yields on interest rate future contracts rose recently on rising inflation expectations and comments by Meirelles that the central bank was prepared to take unpopular measures to keep the financial system stable.

But the data on Thursday helped push lower yields on rate contracts <0#DIJ:>, traders said. Yields on the July 2010 interest rate futures contract edged 2 basis points lower to 9.31 percent and on the January 2011 contract also lost 2 basis points to 10.45 percent.

AUTO SECTOR

Separate data on Thursday also showed the automobile industry, a significant part of the country's manufacturing sector, kept growing strongly in in February.

Automobile output in Brazil jumped 23.9 percent in February from a year earlier and was up 2.8 percent from the January at 253,200 units, the national automakers' association Anfavea said. See [ID:nN04234969]

Vehicle exports meanwhile showed a robust recovery last month, jumping 18 percent from January to 57,500 units -- a 88.3 percent rise compared to February 2009.

Brazil is a major market for Italy's Fiat SpA (FIA.MI), Germany's Volkswagen AG (VOWG.DE), and U.S.-based General Motors Co [GM.UL] and Ford Motor Co (F.N).

A series of government tax breaks in 2009 helped the country's auto industry ride out the global credit crunch and the slump in demand for exports.

Despite the fact that the government is not planning to renew exemptions for new automobile sales when they run out in March, the industry is still expecting solid performance this year. (Additional Reporting by Elzio Barreto and Paula Laier in Sao Paulo, Bruno Peres in Brasilia and Rodrigo Viga Gaier in Rio de Janeiro; Editing by Andrew Hay)