* Higher electricity costs could stall Brazilian recovery
* Lack of rain has reservoirs critically low
* Costly thermo back-up threatens plan to cut energy rates
BRASILIA, Jan 8 (Reuters) - President Dilma Rousseff cut short her vacation on Tuesday to deal with a budding energy crisis that could wreck her efforts to restore vitality to Brazil's economy this year.
Rousseff denies there is any risk of electricity shortages or rationing stemming from a historic drought that has left hydroelectric dams short of water. But some independent analysts disagree, saying it depends on whether summer rains finally arrive in coming weeks.
Even if the worst is avoided, the crisis has already pushed up electricity prices on the spot markets and could torpedo Rousseff's delicately balanced economic agenda. She is trying to revive an economy that likely grew less than 1 percent last year, while also keeping a lid on inflation now running above 5.7 percent.
Rousseff flew back to Brasilia on Tuesday and will sign off on steps to stem the crisis that energy officials are expected to propose on Wednesday.
Electrical companies led Brazil's Bovespa stock index down for a second consecutive day on Tuesday, as sector leader Eletrobras tumbled nearly 9 percent.
Brazil's state-owned energy colossus Petrobras saw shares fall 2.3 percent by mid-afternoon on fears that it would have to shoulder losses to deal with the crisis.
Brazil last rationed power supplies during a drought in 2001. While the electricity grid is much less dependent on hydro power than it was then, the economy has also grown dramatically after a boom during the past decade.
Energy Minister Edison Lobao repeated on Monday that there was no risk of electricity shortages or rationing because Brazil has turned up its thermo-electric power generation. This generation largely uses gas-fired power plants.
Others say it's not that simple.
"It is irresponsible to say that no rationing will be needed. That does not depend on the government, it depends on nature now," said Ildo Sauer, a former head of gas at state-run oil company Petrobras and now a professor of energy at the University of Sao Paulo. "All Brazilians - even the atheists - are praying for more rains and no rationing."
ELECTRICITY PRICES IN DOUBT
The simple math also looks bleak for the government.
Thermal power is five times more expensive to produce than hydroelectricity at current prices. Electricity prices on the spot market shot up more than 60 percent this week to an average 555 reais per MWh, which is not far off the 700 reais level seen during the 2001 energy crisis.
If it does not rain this month and reliance on thermo-power continues into March, electricity rates charged to consumers will rise by 5 percent, said Abradee, an electricity distributors lobby group.
That would eat into efforts by Rousseff to lower energy costs this year by at least 16 percent, a key piece in her government's plans to keep inflation under control.
Deputy Energy Minister Marcio Zimmermann said the use of more costly thermal power was only temporary and the cut in electricity rates for residential and commercial consumers was "guaranteed."
Higher energy costs and the prospect of electricity shortages will also hurt economic activity just as Rousseff was hoping to see the world's sixth largest economy return to solid growth after two years of stagnation.
"This will not only affect inflation but also industrial production," said Jose Francisco de Lima Goncalves, chief economist at Banco Fator investment bank.
The impact on growth is hard to project at this point because it depends on when rain comes and reservoir levels improve, he said.
While Brazil has added 10,000 MW of thermo-electric generating capacity since the 2001 crisis - accounting for 18 percent of its energy demand - most of the generators are gas-driven and LNG prices are high due to demand in Japan since its nuclear catastrophe, Sauer said.
Petrobras has increased imports of liquefied natural gas (LNG) into Brazil's northeast so far in January as the worst drought in decades reduces the availability of hydro power.
As the main importer of LNG, Petrobras supplies generators with discounted gas, which will further add to the oil company's financial woes.
Petrobras will lose between 230 million and 250 million reais per month on the LNG sales as long as the dry weather persists, said Marco Tavares of the Rio-based research firm Gas Energy.
Power shortages would hurt Brazil's massive mining sector most of all and hamper production by big electricity users such as the steel and aluminum industries.
But Brazil's fast-growing ethanol business would not be affected, since it burns its own sugar cane bagasse for power and sells its electricity surplus to the national grid.