* Economists point to U.S. fiscal cliff concerns * Retail sales fall 3.6 percent m/m in Dec, most since Feb 2001 * Data worse than Reuters poll expectations for 1.1 percent fall MEXICO CITY, Feb 21 (Reuters) - Mexican retail sales fell by the most in over a decade in December, backing the case for interest rate cuts ahead to support growth in Latin America's no. 2 economy. Retail sales fell 3.6 percent from the prior month, missing expectations in a Reuters poll for a 1.1 percent contraction, on a drop in sales of electronic goods, computers and cars. Although the numbers are traditionally volatile, they showed the steepest decline since February 2001 and came in well below the downwardly revised 0.73 percent growth notched in November. "It's a really bad number ... it means that consumption is decelerating faster than we expected," said Marco Oviedo, an economist at Barclays in Mexico. Healthy consumer spending helped Mexican output heat up in the fourth quarter last year, picking up the slack from a dip in manufacturing that had previously sheltered the country from the worst of the global slowdown. Yields on Mexican interest rate swaps edged lower after the data as investors added to bets that the central bank could cut its 4.50 percent benchmark rate as soon as March, but the central bank has said a cut is far from a done deal. The Mexican economy normally moves in tandem with that of its northern neighbor, where politicians narrowly averted a package of tax hikes and spending cuts originally set to kick in in January. "People were very concerned about what was going to happen with the U.S. fiscal cliff," said Pedro Tuesta, an economist at 4cast in Washington DC. Slowing U.S. growth would likely push Mexican consumers to retrench. Some $85 billion in spending cuts will begin to hit the U.S. economy after March 1 if lawmakers do not soon reach a deal. Mexico's central bank will be closely watching the outcome of talks as it heads into a rate decision meeting next month. The bank has said it could cut interest rates if inflation continues to cool and the economy flags. Mexico's economy grew 3.9 percent in 2012 but growth is expected to slow to 3.5 percent this year. The market is pricing in slightly more than even odds of a 25-basis-point cut in March, down from highs notched last month after the bank hinted at a rate cut and data showed continued easing in inflation. MIXED SIGNS Retail sales in November were boosted by a long weekend when stores offered discounts right after early year-end bonuses, sapping some of December's demand. But Mexico's retailers' association announced a feeble 0.5 percent growth in sales in January at stores that have been open at least 12 months, though the group has said it's eying 5 percent growth in 2013. Despite the weak retail numbers, Oviedo says other indicators of consumer sentiment are encouraging, from real wage and employment gains to stable credit consumption and a rebound in consumer confidence to pre-crisis levels. The statistics agency also said on Thursday that retail sales growth in December from a year earlier dropped to a nearly three-year low of 1.8 percent. The annual figure, which was the lowest since January 2010 and showed its first contraction since April that year, missed expectations for a 2.1 percent rise.