WRAPUP 1-Mexico holds rates steady, warns on factory output

* Mexico holds benchmark rate steady at 4.5 percent

* Cenbank warns U.S. slowdown could hit Mexican factories

* Economy grows 3.2 pct in 2nd qtr; shrinks 0.4 pct in June

By Jason Lange and Patrick Rucker

MEXICO CITY, Aug 20 (Reuters) - Mexico's central bank said it will keep borrowing costs low to help the country recover from recession and warned factory output could slow, while data released on Friday showed an economic contraction in June.

The bank's decision on Friday to keep its benchmark rate at 4.5 percent was widely anticipated, but its comments on growth suggest policy-makers are in no hurry to follow other Latin American countries like Brazil and Chile in raising interest rates.

"(Mexico's central bank) is now more concerned about the impact of weaker U.S. demand on manufacturing," said Pedro Tuesta, an economist at 4Cast in Washington.

Mexico is limping back from its deepest recession since 1932 after its economy contracted 6.5 percent in 2009.

Growth this year has been erratic and mostly powered by U.S. purchases of Mexican exports like cars and televisions. Mexican consumer demand has been tepid, though the central bank said on Friday it was showing signs of recovery.

While data from the national statistics agency showed gross domestic product growth of 3.2 percent in the second quarter from the previous period -- the fastest rate since 1996 -- it also said the economy contracted 0.4 percent in June from May. [ID:nN20134145]

At the same time, the agency revised downward its GDP reading during the first quarter compared with the final quarter of 2009. It said the economy shrank 0.6 percent during the period, compared to the original reading that showed a 0.4 percent contraction.

Regarding the economy in the United States, which buys about 80 percent of Mexican exports, the central bank said: "Everything points to a economic slowdown going forward."

"In Mexico, manufacturing output and exports continue to grow at accelerated rates, but considering the U.S. outlook, this growth could moderate," the bank said in a statement.

In its statement, the central bank held its target for the overnight bank lending rate MXCBIR=ECI at its lowest level since policy-makers began targeting in January 2008.

Most economists think Mexico's weak economy will keep the central bank from raising interest rates before mid-2011.

"They are going to have to keep rates low for a good while," said IXE analyst Luis Flores.

The decision at the bank's monthly policy review was unanimously expected by 25 economists consulted in a Reuters poll. (Editing by W Simon)