Lula says Brazil's economy turning the corner

BRASILIA, Aug 12 (Reuters) - Brazil's economy is showing signs of recovering in the second semester, President Luiz Inacio Lula da Silva said on Wednesday.

Interest rates are at historic lows but it is "desirable and possible" for them to be cut further, he said. The central bank has slashed borrowing costs by 500 basis points since the beginning of the year to 8.75 percent.

"The employment and industrial activity curves signal a return to growth in the second semester, confirmed by greater confidence by the industry and the foreign investor," Lula said at an event in Brasilia.

Brazil's Bovespa stock index .BVSP is up more than 50 percent this year and its real currency (BRBY) has gained about 27 percent this year.

The strength of the economy is what continues to attract foreign capital to Brazil's financial markets, Lula said.

"It would be a mistake to imagine that the foreign capital flows into the country reflect merely ... financial speculation," Lula said.

Government officials have repeatedly said Brazil would be among the first countries to come out of the global economic crisis which pushed economies the world over into recession.

Market analysts expect Brazil's economy to contract 0.35 percent this year after 5.1 percent growth in 2008.

But among the world's major economies, only China and India are expected to grow more than Brazil this year, according to a July forecast by the International Monetary Fund. (Reporting by Ana Nicolaci da Costa and Ana Paula Paiva; editing by Carol Bishopric)