UPDATE 2-Mexico cuts 2016 economic outlook after 1st-qtr GDP data

(Recasts with government growth estimate cut)
    By Jean Luis Arce and Michael O'Boyle
    MEXICO CITY, May 20 (Reuters) - Mexican growth picked up in
the first quarter on stronger domestic consumption and as
industrial output gained some steam, but the government cut its
full-year growth forecast due to weakness in the United States,
Mexico's top trading partner. 
    The economy grew by 0.8 percent from the prior
quarter, the national statistics agency said on Friday, above
the 0.5 percent rate in the fourth quarter and expectations of
0.7 percent from analysts in a Reuters poll.
    After the data's release, Mexico's government cut its 2016
growth outlook to 2.2 percent to 3.2 percent from 2.6 percent to
3.6 percent. 
    Deputy Finance Minister Fernando Aportela pointed to weak
industrial output in the United States that has directly hit
Mexican exports.
    Analysts have cut back expectations for growth in Latin
America's No. 2 economy, projecting an expansion this year of
around 2.4 percent.
    Exports, which mostly go to the United States, have been
uneven despite a tumble in the peso currency, while a slump in
oil production has also weighed.
    Data on Friday showed the industrial sector bounced back
from a contraction late last year as it expanded at its fastest
pace since the second quarter of 2014, rising 1.2 percent
compared with the fourth quarter.
    Services, which buoyed growth last year, rose 0.8 percent,
slightly below the 0.9 percent pace of expansion in the fourth
    The peso slumped to a three-month low this week and
yields on Mexican interest rate swaps jumped as
investors bet the central bank will hike interest rates from
3.75 percent in the coming months to try to stabilize the peso's
    In annual terms, the economy expanded 2.6 percent compared
with a year earlier, in line with estimates and
above a downwardly revised 2.4 percent expansion in the fourth

 (Writing by Michael O'Boyle; Editing by W Simon and Simon