UPDATE 3-Mexico April inflation quickens but rate cuts eyed

(Adds updated economic forecast from finance minister)

By Jason Lange

MEXICO CITY, May 7 (Reuters) - Mexican inflation accelerated in April on higher food prices, but investors still think the central bank will cut interest rates aggressively to pull the economy out of freefall.

Mexican consumer prices rose 6.17 percent MXCPIA=ECI in the 12 months through April, the first monthly increase since December, the central bank reported on Thursday.

The data, which was in line with expectations, could be a headache for policy-makers who are charged with battling inflation.

But most economists still see the bank cutting interest rates for the fifth straight month on May 15 and then more in coming months to fight a sharp contraction in the economy. The bank's benchmark overnight rate MXCBIR=ECI is currently 6.0 percent.

"The report doesn't change the mindframe of the bank," said Alberto Ramos, an Goldman Sachs economist in New York who sees policymakers cutting the key rate by 75 basis points in both May and June followed by a 50 basis point cut in July.

Finance Minister Agustin Carstens said on Thursday Mexico's economy could contract by 4.1 percent in 2009.

Yields on interest rate futures in Mexico <0#TII:> barely moved on Thursday following the data, meaning investors in that market had not changed their bets on the direction of monetary policy.

Mexican exports have collapsed and the finance ministry says the economy contracted up to 8 percent during the first quarter as recession-stricken Americans bought fewer cars, refrigerators and other products made south of the border.

The economy also took a hit in recent days from an outbreak of a new flu strain that killed dozens of people and led the government to temporarily shut down factories and offices.

Consumer prices rose 0.35 percent in April MXINFL=ECI, while the closely watched core consumer price index MXCPIX=ECI, which strips out some volatile food and energy prices, rose 0.38 percent during the month.

The annual headline reading rose from March's 6.04 percent.