UPDATE 1-Mexican economy in April shrinks most in four months
* Economic growth contracts 0.77 percent month-on-month * Sharpest contraction since Dec on weak services, industry * Annual figure notches strongest expansion since July MEXICO CITY, June 25 (Reuters) - Mexico's economy contracted in April by the most in four months compared to March, on weakness in services and industry, signaling more headwinds for Latin America's no. 2 economy. Mexico's monthly gross domestic product proxy shrunk by 0.77 percent in April compared with the prior month, when it grew at a downwardly revised 0.16 percent rate. April's contraction was the strongest since December, 2012. Industry posted a 1.67 percent month-on-month decline, below March's 0.39 percent contraction, while the services sector shrunk by 0.57 percent from a 0.92 percent expansion in the previous month. But on an annual basis, economic activity shot up 4.55 percent in the 12 months through April, its fastest pace since July, 2012. The figure was well above March's upwardly revised 1.7 percent annual contraction. The annual rate was helped by Easter, which was celebrated in March this year but in April last year, leading to a greater number of working days in April in 2013, the statistics agency said. Mexico's annual economic growth slumped in the first quarter to its weakest in three years, prompting the government to cut growth estimates to 3.1 percent for the year, down from last year's 3.9 percent rate. Data earlier this month showed Mexican industrial output dropped in April by the most in four months, while retail sales also slipped, reinforcing the dreary economic outlook. Markets have priced out further interest rate cuts since the central bank's March cut to a record low, as expectations mount for the U.S. Federal Reserve to rein in stimulus, which may weaken the peso further and push up import prices.