UPDATE 1-Brazil economic activity jumps in August as recovery takes hold
* Activity index climbs at fastest pace since March 2011
* Surge points to stronger recovery after flurry of stimulus
By Alonso Soto
BRASILIA, Oct 11 (Reuters) - Brazil's economic activity climbed in August at its fastest pace since March of 2011, suggesting that an incipient recovery is gaining strength after an avalanche of stimulus measures by the government, central bank data showed on Thursday.
The central bank's IBC-Br economic activity index rose 0.98 percent in August from July in seasonally adjusted terms. July's rise was revised up to 0.49 percent from 0.42 previously.
The index, a gauge of activity in the farming, manufacturing and services sectors, rose 1.87 percent from the same period a year earlier, the bank added.
The government of President Dilma Rousseff has scrambled for more than a year to revive a moribund economy with a flurry of tax breaks and billions of dollars in cheap loans.
The recovery has been softer than originally expected by both officials and analysts, but they agree the economy will perform much better in the second half of the year than in the first half.
The IBC-Br is closely watched by economists, who regard it as a proxy for official gross domestic product data. Brazil's economy grew just 0.4 percent in the second quarter from the first, marking one year of feeble performance as high costs and weak global demand hit domestic manufacturers.
Jankiel Santos, chief economist with BES Investimento, said the number is further evidence that the economy is pulling out of year-long lull. He predicted a 1.1 percent increase in August versus July.
After cutting its benchmark interest rate for a tenth straight time on Wednesday, the central bank suggested it will hold the rate at record lows for a prolonged time.
Low interest rates and promises by the government to deliver measures to help local manufacturers are expected to speed up growth to about 4 percent next year. This year the Brazilian economy is seen growing a meager 1.5 percent.
Still, some economists worry that the flurry of monetary and fiscal stimuli could end up stoking already high inflation and increasing loan defaults.
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