UPDATE 3-Mexico April industry output rises, led by factories

Mon Jun 11, 2012 11:21pm IST

* Output up 0.7 pct, mo/mo vs 0.5 pct in poll

* Factory output up nearly 1.1 percent

* Industrial output rises 3.6 pct yr/yr vs 3.9 pct expected (Wraps in May auto data, adds graphic)

MEXICO CITY, June 11 (Reuters) - Mexican industrial output rose in April from March, helped by solid factory production that backed expectations for policymakers to leave interest rates steady through next year.

Production jumped nearly 0.7 percent from March, just beating estimates in a Reuters poll, from an upwardly revised 1.56 percent pace in March, the national statistics agency said on Monday.

Solid demand in the United States for Mexican exports has helped shield Mexico from a wider global slowdown that has dragged on Brazil and pushed Latin America's top economy to slash borrowing costs to prop up growth.

"There is still some demand for our manufacturing in the United States to pull along our economy a bit more," said Eduardo Gonzalez, an economist at Banamex in Mexico City.

Fueled by solid automobile production, factory output, a subcomponent of industrial output, rose 1.1 percent in April, month on month, after a 1 percent expansion in March.

"It's a very encouraging start to the second quarter," said Luis Arcentales, an economist at Morgan Stanley in New York.

A separate report from the Mexican Auto Industry Association (AMIA) on Monday showed that auto production rose 2.8 percent in May from the same month a year earlier. Auto exports last month rose by 5.7 percent on the year, AMIA said.

Mexico's economy grew faster than expected in the first quarter and North American growth is holding up even as Europe slides toward recession and growth cools in Asia.

Mexico's central bank held borrowing costs steady on Friday as policymakers said there was a rising threat to global growth from Europe's debt troubles.

But the central bank also ramped up concern that a weak peso could fan inflation, and policymakers leaned back from an interest rate cut.

Central banks usually lower interest rates to spur economic growth and raise them to curb inflation.

Inflation sped up to 3.85 percent in the 12-month period through May, but Gonzalez said there was still enough slack in the economy from the deep 2009 recession to keep inflation pressures from growth at bay.

"The central bank has plenty of margin to hold rates," he said. "The United States will not change monetary policy until late 2014, and Mexico will likely move in synch."

Interest rate futures were little changed after the data, with the market betting Mexico will hold its benchmark rate steady into mid-2014.

Industrial production in Mexico encompasses output in mining, construction, utilities and manufacturing.

As compared with a year earlier, overall industrial production rose 3.6 percent in April, lower than estimates of a 3.9 percent increase and off March's downwardly revised 3.1 percent growth. (Reporting by Michael O'Boyle and Krista Hughes; Editing by Andrew Hay)

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