UPDATE 4-Mexico sees recession, cenbank suggests rate cuts

* Mexican government sees recession

* Central bank "enormously" worried about growth

* Policy-makers hint at interest rate cuts (Recasts; adds details on government growth forecast)

By Jason Lange and Luis Rojas Mena

MEXICO CITY, Jan 9 (Reuters) - Mexico's government warned on Friday the economy will languish in recession early in 2009, and the central bank hinted it would lower borrowing costs to soften the blow.

"We are enormously worried about growth," central bank governor Guillermo Ortiz said at an economic conference.

The economy in Mexico is reeling as U.S. consumers, battered by an economic crisis, buy fewer of its exports.

Mexico sends about 80 percent of its exports to the United States, which is mired in recession and suffering its worst financial crisis since the Great Depression.

The Finance Ministry said the economy will shrink during the first and second quarters of 2009, while Ortiz said gross domestic product likely contracted during the last three months of 2008.

Economists generally consider an economy in recession if it contracts for at least two consecutive quarters.

The government is scrambling, announcing cuts in energy prices this week to ease the recession's blow on Mexican consumers. Ortiz said the measures meant recently high inflation will begin to slow this month.

"This should give us room in the central bank to have a monetary policy that can help to mitigate the negative effects of the current situation," Ortiz said.

RATE CUT

His comments sharply increased expectations the central bank will lower borrowing costs next week at a scheduled policy review, according to bets made in the interest rate futures market <0#TII:>.

The yield on a 28-day TIIE January futures contract TIIF9 tumbled 29 basis points to 8.21 percent.

The 28-day TIIE contract is currently fetching a yield of 8.665 percent, so the steep drop registered on Friday implies investors are betting on a cut of at least 25 basis points this month.