UPDATE 2-Foreign investment in Brazil jumps, defies global slowdown

* FDI reaches $8.4 bln, highest since Dec 2010

* Cbank says 2012 FDI may exceed original forecast

* Higher trade surplus shrinks current acct gap in July

* 12-month current acct gap equal to 2.17 pct of GDP

By Alonso Soto and Tiago Pariz

BRASILIA, Aug 23 (Reuters) - Foreign direct investment in Brazil surged to a 1-1/2-year high in July, defying slowing growth in the domestic and global economies and fully covering a shrinking current account gap.

The current account deficit was $3.766 billion in July, central bank data showed, narrower than the $4.4 billion deficit in June and smaller than the median of market analysts' expectations.

That gap was fully covered by a surge in foreign direct investment, which falls under the capital account in the balance of payments. FDI jumped to $8.421 billion in July, well above the $5.8 billion of June.

It was the highest figure since December 2010, when the country attracted $15.36 billion in foreign direct investment, driven in part by China's Sinopec buying a $7.1-billion stake in Brazil oil assets held by Spain's Repsol.

Foreign investment has remained robust in Brazil, despite a sharp economic slowdown since mid-2011, as investors see more opportunities in the Latin American giant than in a recession-hit Europe or a sluggishly recovering United States.

Last week, Brazilian President Dilma Rousseff announced a plan to lure about $66 billion in investments to upgrade the country's decaying road and rail networks. She is expected to open some airports and seaports for private sector investment.

As host of the 2014 Soccer World Cup, the 2016 Olympics and holder of some of the world's largest oil reserves, Brazil is expected to keep attracting foreign capital in the coming years.

"We are moving to a year in which the (current account)deficit will be fully financed by FDI," central bank head of economic research, Tulio Maciel, told reporters after the data was released.

Indeed, he said the bank's estimate for $50 billion in FDI this year could be too pessimistic.

A jump in financial services investment, which skyrocketed to $3.19 billion in July from $577 million a year ago, boosted overall FDI.

Maciel said he didn't have further details on what caused the dramatic jump in that segment, but said much of the investment came from Switzerland.

Overall FDI has dropped in the first seven months of year compared with the same period of 2011, mostly in the agriculture, mining and services sectors. Foreign investment in the country's struggling industrial sector has surprised on the upside, rising to $15.13 billion between January and July, from $13.36 billion in the same period of last year.

Foreign investment in the industry has been mostly in food, chemical and pharmaceutical products, central bank data showed. On the other hand, investments have fallen in the electronics, metals, oil derivatives and vehicles segments.

STABLE CURRENT ACCOUNT

The current account deficit, which is part of the balance of payments that measures a country's foreign transactions, fell in July with the help of a jump in the trade surplus.

Brazil's trade surplus widened in July to $2.879 billion due to a jump in exports and stable imports as a weaker real, the country's currency, increased the price of foreign goods. A jump in the price of some commodities like soy helped lift exports.

A weaker domestic economy has also crimped profits for some foreign companies in Brazil, leaving them less to repatriate home. The amount of repatriated profits and dividends rose slightly in July to $1.719 billion from June, but fell by nearly half in the first seven months of the year when compared to the same period last year.

Brazil's 12-month trade surplus has shrunk this year, but the current account gap has remained relatively stable.

That disparity is explained by equity investment playing a larger role in the financing of the balance of payments and a weaker real, Alexandre Schwartsman, a partner at Schwartsman & Associados, said in a note to clients prior to the data release.

"As a result of these two developments the payments associated to foreign capital have become strongly procyclical," said Schwartsman, who is a former central bank director.

The current account deficit in the 12 months through July was equal to 2.17 percent of the country's gross domestic product, the central bank said, widening slightly from a previously reported 2.16 percent of GDP in the year to June.

The country had been expected to post a deficit of $3.9 billion, according to the median forecast of 18 analysts in a Reuters survey.