* Retail sales fall 3.6 pct m/m in Dec, most since Feb 2001 * Misses Reuters poll expectations for 1.1 pct fall * Backs bets for interest rate cut MEXICO CITY, Feb 21 (Reuters) - Mexican retail sales fell by the most in over a decade in December, reinforcing bets the country's central bank could soon cut interest rates to support growth in Latin America's no. 2 economy. Retail sales fell 3.6 percent from the prior month, missing expectations in a Reuters poll for a 1.1 percent contraction, on a drop in sales of electronic goods, computers and cars. It was the steepest decline since February, 2001 and came in well below the downwardly revised 0.73 percent expansion notched in November. "It is a surprising fall," said Pedro Tuesta, an economist at 4Cast in Washington DC. Healthy consumer spending helped Mexican output heat up in the fourth quarter last year, picking up the slack from a dip in manufacturing that had previously sheltered the country from the worst of the global slowdown. Yields on Mexican interest rate swaps edged lower after the data as investors added to bets that the central bank could cut its 4.50 percent benchmark rate as soon as March. The Mexican economy moves in lockstep with that of its northern neighbor, where politicians narrowly averted a package of tax hikes and spending cuts originally set to kick in in January. "People were very concerned about what was going to happen with the U.S. fiscal cliff," Tuesta said. Slowing U.S. growth would likely push Mexican consumers to retrench. Some $85 billion in spending cuts will begin to hit the U.S. economy after March 1 if lawamkers do not soon reach a deal. Mexico's central bank will be closely watching the outcome of talks as it heads into a rate decision meeting next month. The bank has said it could cut interest rates if inflation continues to cool and the economy flags. Mexico's economy grew 3.9 percent in 2012 and is expected to slow to 3.5 percent expansion this year. The market is pricing in slightly more than even odds of a 25 basis point cut in March, and eyeing a good chance for a half-percentage point cut during the year. MIXED SIGNS Retail sales in November were boosted by a long-weekend when stores offered discounts right after early year-end bonuses, sapping some of December's demand. Mexican consumer confidence slipped off of a nearly five-year high in January as shoppers in Latin America's second biggest economy showed less willingness to make big purchases. That same month the Mexico's retailers' association announced a feeble 0.5 percent growth in sales in January at stores that have been open at least 12 months. The association has still said it is eyeing 5 percent growth in 2013 on continued strength in department store sales. The statistics agency also said on Thursday that retail sales in December dropped 1.8 percent from a year earlier, compared to expectations for a 2.1 percent rise and a 3.5 percent annual rate in November.