UPDATE 2-Mexico annual inflation eases in January

(Recasts, adds detail, background and byline)

By Noel Randewich

MEXICO CITY, Feb 7 (Reuters) - Mexican annual inflation fell to 3.70 percent in January, down 6 basis points from the prior month, raising expectations of an interest rate cut, thanks to slower-rising tortilla prices.

Headline inflation in January was 0.46 percent.

Core inflation, which strips out some volatile food and energy prices, was 0.40 percent, with annual core inflation at 4.06 percent, down 8 basis points from December, the central bank said in a report.

The central bank said tortilla prices contributed less to inflation in January than in the year-ago period, when they were hit hard by a spike in the price of corn and other grains.

Economists in a poll on Wednesday had predicted on average that January headline inflation would come in at 0.54 percent.

Rising prices for housing, electricity and beer pushed the consumer price index higher in January, while lower prices for tomatoes, vacations and oranges helped contain inflation, the bank said.

Last week, the central bank held steady its consumer price forecast for the next two years, as a slowing U.S. economy compensates for higher international grain and dairy prices, which have been fueled by soaring demand in Asia.