UPDATE 2-Brazil economy perks up in closing months of 2011

* IBC-Br index rises 0.57 pct in December from November

* Analysts expected a growth of 0.50 percent

* Economic activity index rises 0.27 pct in Q4 from Q3

* IBC-Br advances 2.79 pct in 2011 (Adds performance in fourth quarter)

By Silvio Cascione

SAO PAULO, Feb 16 (Reuters) - Economic activity in Brazil rose 0.57 percent in December from November, the second increase in a row, adding evidence of a rebound in Latin America's largest economy after interest rate cuts and tax incentives.

The central bank's IBC-Br economic activity index , a closely watched proxy for gross domestic product data, rose 0.27 percent in the fourth quarter from the previous one, rebounding from a 0.21 decline in the third quarter.

Analysts expected economic activity to expand 0.50 percent in December, according to the median forecast of eight analysts polled by Reuters. The estimates ranged from growth of 0.40 percent to 0.70 percent.

Still, the index suggested that Brazil's economy may have grown less in 2011 than the bank's forecast for a 3 percent expansion.

The index rose 2.79 percent in 2011. In 2010, the IBC-Br rose 7.6 percent, while official GDP growth was 7.5 percent, according to national statistics agency IBGE.

Brazil's economy lost steam in the second half of 2011 after interest rate hikes and amid prospects of slower growth abroad.

To stimulate economic growth, the central bank began slashing its benchmark interest rate from 12.5 percent in August to 10.5 percent currently. The government reduced taxes on manufactured products such as ovens and refrigerators to stoke demand for appliances.

Analysts expect the economy to keep accelerating into 2012 as the central bank continues to cut rates. The bank has said that Brazil's neutral interest rate - the level in which monetary policy is neither expansionary nor contractionary - has decreased on the country's improving economic fundamentals, and that a single-digit rate scenario is "very likely".

The central bank foresees a 3.5 percent growth in 2012, while market analysts expected a 3.3 percent expansion in the latest Reuters poll.

To fend off potential inflationary pressures and leave room for further rate cuts, the Brazilian government froze 55 billion reais ($32 billion) - 3.6 percent - in spending in this year's budget.

Fourth-quarter GDP figures will be released on March 6.

In January, the median forecast of 34 economists in a Reuters poll was for 3 percent GDP growth in 2011.

November's IBC-Br results were revised up to a 1.29 percent increase from October, from 1.15 percent previously.

In December, the IBC-Br rose 1.71 percent from the same period a year before. In November, it had gained 1.26 percent.

(Editing by W Simon)