UPDATE 2-Mexican October economic activity fans 4th-qtr optimism

Thu Jan 10, 2013 12:26pm EST

Related Topics

* Mexico Oct economic growth 4.33 pct yr/yr; poll 3.8 pct

* Spending on new investment goods up 9.5 pct yr/yr in Oct

* Economists, investors see no change to interest rates

* Auto production edges up 0.02 pct in Dec -AMIA

MEXICO CITY, Jan 10 (Reuters) - Mexico's economic activity accelerated in October on strength in the services sector, easing fears that the global economic slowdown is dragging on Latin America's No. 2 economy.

Official data on Thursday showed annual economic activity grew 4.33 percent in the 12 months through October, trumping expectations for 3.80 percent growth in a Reuters poll. The pace outstripped the downwardly revised 1.21 percent expansion notched in the prior month.

"It's an important bounce, particularly in services," said Iker Cabiedes, an economist at JPMorgan in Mexico City, who said internal demand was helping to bolster an economy that had faltered in the third quarter. "The data indicates that we could see activity recover" in the fourth quarter.

Unexpectedly strong U.S. demand for Mexican-made cars and televisions has also helped maintain output despite a downturn in the global environment, and a raft of reforms proposed by new President Enrique Pena Nieto could further bolster growth.

The economic data, seen as a proxy for gross domestic product, prompted Mexican bank Banorte to revise its 2012 growth forecast up to 4 percent, from 3.7 percent. Barclays, which has been forecasting a 3.8 percent expansion, said the fourth quarter was looking better than expected.

Mexico's services sector, which makes up 65 percent of the economy, expanded 4.1 percent in the 12 months through October, while manufacturing activity picked up by 3.6 percent.

On a monthly basis, economic activity expanded by 0.16 percent in October, weighed down by a 0.86 percent contraction in manufacturing. That was below forecast for 0.69 percent growth in a Reuters poll.

In separate data, Mexico's automakers produced and exported a record number of vehicles in 2012, according to the Mexican Auto Industry Association (AMIA).

The central bank has held benchmark interest rates steady at 4.5 percent, in a bid to balance growth risks from a global slowdown and inflation pressures prompted by a spike in fresh-food prices in early 2012.

But annual inflation in December fell below the central bank's 4 percent tolerance ceiling for the first time in seven months, bolstering expectations that rates will remain on hold through mid-2014.

Mexico's biggest retailer, Wal-Mart de Mexico, said on Monday that sales at its Mexican stores open for at least a year rose 1.6 percent in December from a year earlier.

Other data released Thursday showed annual spending on new investment goods in Mexico rose in October by 9.5 percent, led by 19.3 percent expansion in investment in machinery and equipment. That compared with downwardly revised growth of 3.0 percent in the prior month.

"Mexico is enjoying certain international factors that are playing in its favor," said Ezequiel Aguirre, a Latin America strategist at Bank of America in New York, who noted that rising salaries in China and expensive transport driven by higher fuels costs are pushing companies to relocate plants to Mexico.

But the monthly measure of spending on machinery, equipment and new construction was down 0.3 percent, below September's downwardly revised 0.97 percent expansion.

President Pena Nieto's administration, which began in December, has projected Mexico's economy will grow 3.5 percent in 2013, down from an estimated 3.9 percent in 2012 as the global slowdown weighs.

The chief of the Organization for Economic Cooperation and Development, Angel Gurria, on Wednesday said growth could touch 6 percent within the next six years if the new government succeeds in pushing through an ambitious reform agenda .

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