Brazil output in January above forecast, yields rise

Industrial output in Brazil rose in January from December despite forecasts for a drop, adding to potential pressure on the country's central bank for an aggressive interest rate hike later in the day.

Industrial production in Brazil rose 0.2 percent in January from December BRIO=ECI, the government's statistics agency, IBGE, said on Wednesday.

Production had been expected to dip 0.4 percent, according to the median estimate of 21 analysts in a Reuters survey. The forecasts ranged from a fall of 1.5 percent to a gain of 0.2 percent.

Yields on interest rate futures contracts <0#DIJ:> rose in early trading after the data. The yield on the contract due January 2012 DIJF2, among the most highly traded of the early session, advanced to 12.54 percent from 12.5 percent in the previous session.

Central bank monetary policy-makers meet later in the day, and analysts expect them to hike the benchmark Selic lending rate to 11.75 percent from 11.25 percent.

"This doesn't change the picture of an economy growing at a slower pace," said Newton Rosa, chief economist of SulAmerica Investimentos.

"The market might raise its bets for a hike of 75 basis points instead of 50 basis points, but I don't think that will be the case," he added.

Production rose 2.5 percent year-on-year in January BRIOY=ECI, more than the 1.5 percent median forecast in the Reuters survey. Estimates for the output increase ranged from a dip of 0.1 percent to a gain of 3 percent.

Though domestic demand has driven Brazil's recovery, industry has struggled, notching sluggish growth or even contraction since the second quarter. In contrast, retail sales have been more robust.

A stronger currency, the real BRBY, has contributed to factories' woes, fueling cheaper imports as Brazilian exports become more expensive abroad.

Of the 27 industrial sectors surveyed, 15 advanced in January from December, with electronics and communication equipment rising the most.

In broader industrial categories, output of capital goods moved up 1.8 percent for the month, the IBGE said. Production of consumer goods rose 0.8 percent month on month, and durable consumer goods jumped 6 percent.