UPDATE 1-Mexico's economic activity grew 2.7 pct in Sept

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By Noel Randewich

MEXICO CITY, Nov 27 (Reuters) - The Mexican economy expanded 2.7 percent in September over the year-ago period, the government said on Tuesday, as strength in services offset a flimsy performance in the key industrial sector.

Economic output MXIGDP=ECI rose 0.19 percent in September from August on a seasonally adjusted basis.

The industrial sector, which drives much of Mexico's economy by producing automobiles, minerals and other goods for export, expanded a sluggish 0.4 percent in September.

Services rose 4.2 percent, with strength in communications and banking, while agriculture, which has a lesser effect on the economy, dipped 0.2 percent after farmers planted fewer crops last spring.

The monthly IGAE index MXIGDP=ECI measures about 96 percent of Mexican economic output.

The economic activity data for September was included in last week's report showing Mexico's gross domestic product grew 3.7 percent in the third quarter, with strength in services offsetting weakness in manufacturing.

Within the closely-watched industrial sector, manufacturing fell 0.3 percent in September, while construction, helped by a government program to build more infrastructure, rose 2.7 percent. Industry related to electricity, gas and water increased 3 percent in September, the government said.

The Mexican economy grew 4.8 percent in 2006 but has lost steam this year because of slower growth in the United States, the country's main trade partner.

A crisis in the risky U.S. subprime mortgage market that is causing global market volatility and threatening to spread to banks in other countries could further slow economies around the world.

Mexico's economy is expected to grow around 3 percent next year. (Editing by James Dalgleish)