UPDATE 2-Brazil's economic activity slows sharply in February

Wed Apr 16, 2014 8:46am EDT

(Adds analyst comments in 5th paragraph and context)

BRASILIA, April 16 (Reuters) - Brazil's economic activity slowed sharply in February from January, central bank data showed on Wednesday, suggesting a weak start to the year that could pressure the central bank to halt its year-long campaign of interest rate hikes.

The central bank's IBC-Br economic activity index rose 0.24 percent in February from January in seasonally adjusted terms, slightly below the market forecast for an increase of 0.3 percent.

Economic activity growth in January was revised up to 2.35 percent from a previously reported 1.26 percent, according to central bank data. The index for December was also revised to a bigger drop of 2.26 percent from a decline of 1.40 percent previously.

The Brazilian economy is expected to post a fourth straight year of subpar growth as a slow global recovery and supply bottlenecks at home hurt activity in Latin America's largest economy.

"It reinforces our forecast of moderate growth in the first quarter of 2014," economists with Santander Global Banking & Markets, adding they estimate the economy will grow 0.4 percent in the first quarter versus the previous quarter.

The central bank has raised rates by 375 basis points to 11 percent since April of last year to battle inflation that has remained stubbornly high despite lackluster growth.

The sharp increase in borrowing costs is expected to further slow the economy, which is expected to grow only 2 percent this year, economists said.

The bank has warned it is near the end of the tightening cycle despite a spike in food prices caused by a drought in southeastern Brazil.

In the 12 months through February, economic activity grew 2.57 percent from 2.29 percent in January.

The IBC-Br index, a gauge of activity in the farming, industry and services sectors, rose a non-seasonally adjusted 4.04 percent over the same month a year ago. (Reporting by Alonso Soto; Editing by Chizu Nomiyama, Bernadette Baum and Sofina Mirza-Reid)