* Spanish economy expands by 0.7 percent in Q4
* Momentum may ease as inflation rises
* Graphic of Spain's GDP bit.ly/2mwpcBS (Adds details, quote)
By Sarah White and Paul Day
MADRID, March 2 (Reuters) - Spending by Spanish households kept the economy on a solid footing in the fourth quarter of last year with exports also fuelling growth ahead of what may be a trickier 2017, data showed on Thursday.
The Spanish economy expanded by 0.7 percent between October and December from the previous three months, the National Statistics Institute (INE) confirmed in a final reading, unchanged from the growth rate recorded a quarter earlier.
A recovery in the job market in Spain’s third year out of recession helped sustain spending by families, and weak inflation also boosted household budgets after many Spaniards faced steep wage cuts during a prolonged downturn.
For the year, the Spanish economy grew 3.2 percent, the same as in 2015. The European Commission forecasts it will dip to 2.3 percent growth this year while Madrid reckons 2.5 percent.
Indeed, the coming months may be more challenging as some of the tailwinds boosting the latest expansion fade. Consumer prices, for example, already spiked year-on-year in January and February as energy costs rose.
Economists also expect the pace of job creation to eventually start slowing, though employment data released on Thursday showed hiring continued apace in February.
The number of people signing on to pay social security - a measure of job creation - rose by 74,080 month-on-month, the Labour Ministry said, more than in February 2016, helped by hiring in construction, education and hotels and restaurants.
The growth momentum recorded at the end of 2016 may have carried into the first three months of the year, Economy Minister Luis de Guindos said.
“Quarterly growth at the very least will be similar to what we had in the second half of last year,” de Guindos told Radio Nacional on Thursday. He expects lower inflation in the second quarter.
Spain’s economy largely shrugged off a prolonged period of political turmoil at home in 2016 as parties struggled to form a government for 10 month following two inconclusive elections.
Investment, as measured by growth in capital goods, rose 3.1 percent in 2016, down from a 6 percent increase in 2015, INE data showed.
Reporting by Sarah White and Paul Day Editing by Jeremy Gaunt