WRAPUP 1-Brazil's Lula says economy will grow in 2009

By Walter Brandimarte and Pedro da Costa

NEW YORK, March 16 (Reuters) - Brazil's economy will expand this year as domestic demand and government investment make up for pressures from the global financial crisis, President Luiz Inacio Lula da Silva and his top ministers said on Monday.

But their forecast indicated the country would not escape a brief recession, with growth seen unlikely to resume at least until the second quarter. Brazil's economy took a dive in the fourth quarter.

"We will grow in 2009 less than what we would like, less than we could grow if there was no external crisis. But we will grow," Lula told an investor conference in New York.

Lula's chief of staff and possible successor, Dilma Rousseff, was a bit more specific. She foresaw a return to expansion in the second quarter following a 3.6 percent contraction in gross domestic product in the last three months of 2008, which was widely seen spilling into the start of this year.

"All the signs point to a recovery, or at least a reduction in the decline and the possibility of resuming growth in the second quarter and in the second half of this year," Rousseff said.

Her comments contradicted new forecasts on Monday from Morgan Stanley, which predicted the Brazilian economy would shrink by as much as 4.5 percent in 2009.

Lula dismissed the bank's projections, saying that Wall Street was unable to predict its own outlook, much less Brazil's. He declined to offer concrete figures of his own, but said Brazil will "certainly" grow this year if it succeeds in implementing its investment plans.

Offering some evidence of recovery, the chief executive of Brazil's state-owned oil company, Petrobras (PETR4.SA), said Brazilian fuel demand started to rebound in the first quarter.

Finance Minister Guido Mantega said Brazil still had plenty of room to use both government spending and looser monetary policy to ease the troubles associated with the breakdown of international finance.

"We still have plenty of ammunition," Mantega said.

The comments cemented the notion that Brazil may soon relax its target for a primary budget surplus in order to help fend off the economic downturn.

SAFE ALTERNATIVE

Indeed, Mantega seized the opportunity to urge foreign investors to put their money in Brazil.

He noted that Chinese officials had recently expressed concern over the credit-worthiness of the United States, given that China is the biggest foreign owner of U.S. Treasuries, holding more than $700 billion.

While he affirmed that he saw no reason to worry about the soundness of the U.S. Treasury's finances, Mantega also said: "If there is anyone worried about investing in Treasuries, there is a safe, higher-yielding alternative -- Brazilian bonds."