Citigroup sees risk of Brazil asset bubble-report

* Citigroup economist: Current growth rates unsustainable

* Buiter tells Valor rate hikes are 'behind the curve'

SAO PAULO, June 16 (Reuters) - Brazil's central bank took too long to raise the benchmark overnight rate this year to head off inflation, which has increased the risk of an asset bubble, the chief economist of Citigroup (C.N) told Valor Economico newspaper.

"The central bank is well behind the curve," Citigroup economist Willem Buiter, a former Bank of England policymaker, told the paper in an interview from New York published on Wednesday.

Buiter told Valor that growth rates in Brazil, which hit an annualized 9 percent through the first quarter, were unsustainable and might feed possible bubbles in the stock and real estate markets. Most economists define bubbles as a situation where asset prices deviate significantly from their historic means and rise quickly.

"Either growth in Brazil has reached unsustainable levels or the laws of gravity have been suspended," Buiter told Valor. "This type of story always ends in tears."

The Brasilia-based central bank raised its benchmark interest rate on June 9 for a second straight time, lifting it to 10.25 percent from 9.50 percent in a move to keep Latin America's largest economy from overheating.

Brazil's economy grew at its fastest pace in at least 14 years in the first quarter, up 9 percent on an annual basis. That was only moderately below China's 11.9 percent growth rate in the same period.

Many economists say Latin America's largest economy lacks the infrastructure and production capacity to cope with high growth levels without fueling inflation. [ID: nN11146198] (Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn)