Brazil June activity down, first time since 2008

The central bank's IBC-Br economic activity index fell 0.26 percent in June from May, the first sequential drop since the country fell into recession at the height of the global financial crisis.

The numbers accompany signs the central bank's interest-rate hikes and credit curbs are finally putting the brakes on the nation's torrid economic expansion.

Sagging industrial output and retail sales data in recent weeks have fanned worries the economy might be losing steam faster than initially expected.

"The bottom line is that the economy likely slowed much more than we anticipated in the second quarter," Goldman Sachs economist Paulo Leme told clients in a note. "The initial conditions for activity are worse even before we consider the risk of contraction shocks coming from abroad."

The bank also revised down growth in May from April to 0.05 percent from a previously reported 0.17 percent.

According to Barclays Capital economist Marcelo Salomon, the central bank's revisions shaved nearly one-third of a percentage point off growth in the January-May 2011 period.

Leme said the data, coupled with concerns about a global economic slowdown, increased odds the central bank would hold its benchmark lending rate on Aug. 31 rather than raise interest rates as Goldman Sachs previously forecast.

The central bank has raised interest rates five times this year to 12.5 percent to try to rein inflation as it rose to its fastest pace in six years.

Yields on Brazilian interest rate futures contracts sank in Wednesday trade on concerns activity could be slowing at a faster pace than expected. Investors usually push rates lower when they expect economic activity to lose steam.

The yield on the rate contract due January 2013, among the most highly traded early in the session, slumped to 11.79 percent from 11.86 percent in the previous session.

Copyright Reuters, 2011