UPDATE 3-Brazil cuts rate, surprises with dovish tone

* Central bank cuts rate 75 bps to 9%, near all-time low

* Bank sees few inflation risks, hints easing not over

* Inflation, overheating fears could limit future cuts

By Alonso Soto and Tiago Pariz

BRASILIA, April 18 (Reuters) - Brazil lowered its benchmark interest rate to a near-historic low of 9 percent on Wednesday, as expected, but the central bank surprised with hints that more cuts may follow to revive Latin America's largest economy.

The bank's monetary policy committee, known as Copom, voted unanimously for a hefty 75 basis-point rate cut, its sixth straight reduction since August.

Brazil has been flirting with recession since the second half of last year, and President Dilma Rousseff has expressed hopes that lower rates will help spur spending and spark a return to the high growth rates that made the country one of the world's most dynamic economies.

The bank has been doing just that, slashing an accumulated 350 basis points off the so-called Selic rate.

But after signaling at its last policy meeting that the easing cycle was winding down, the bank on Wednesday left the door open to more cuts, citing a benign inflation outlook.

"At this moment, the risks to the inflation trend remain limited," the bank said in its rate decision statement.

"Until now," the bank added, "given the fragility of the global economy, the contribution of the foreign environment has been disinflationary."

Most analysts saw the statement as a reversal. By downplaying fears that inflation could pick up speed next year, the bank gave itself room to cut rates further.

"They were very dovish and inconsistent with the guidance that they provided," said Alberto Ramos, senior economist with Goldman Sachs in New York. "They definitely leave the door open for additional rate cuts."

Given the bank's previous comments, an overwhelming majority of analysts polled by Reuters before Wednesday's decision predicted the bank would likely keep the rate steady at 9 percent for the rest of the year.

Central Bank President Alexandre Tombini said this month the bank would likely cut the Selic rate to just above the record low of 8.75 percent and then keep the rate there for some time. Investors took his comments to mean a drop to 9 percent, with no additional cuts to follow.

The bank's more relaxed tone on inflation suggests policymakers are willing to wait and see whether the current easing is misguided. Abrupt changes to price trends, quicker growth or any external economic shocks could force it to quickly change pace.

While growth remains sluggish, the global economy is slowly improving as the United States recovers and dangers in Europe recede, the International Monetary Fund said this week.

Tombini agrees risks have subsided, but has stressed that the global recovery remains fragile.

CAN SELIC GO LOWER?

Although Brazil's interest rates continue to be the highest of any major economy, analysts see limits to how much lower they might go. If the Selic falls below 9 percent, they warn, it could prompt investors to drop government bonds and seek similar or higher returns in tax-free savings accounts.

A flight to savings accounts, in turn, could raise financing costs for the government.

Faced with municipal elections later this year Rousseff's government has ruled out slashing the returns on savings accounts, a move that would be highly unpopular.

Inflation could also limit the bank's room to maneuver even though 12-month readings have steadily fallen after reaching a seven-year high last year. Annual inflation fell to 5.24 percent in March, but still remains above the midpoint of the official target of 4.5 percent - plus or minus two percentage points.

The IMF also warned this week that Brazil still faces risks of overheating as the world's No. 6 economy begins to regain steam. The lower rates, coupled with tens of billions of reais in government stimulus measures, could eventually stoke inflation.

Rousseff has lowered taxes and boosted subsidized lending in efforts to spur the economy and meet the government's growth forecast of at least 4 percent in 2012. The economy cooled sharply to 2.7 percent last year.