BUSINESS SECTION

Aug. 11 (Bloomberg) -- Mexico's industrial output growth slowed more than expected in June, dragged down by a 0.2 percent decline in manufacturing.

Industrial output rose 0.7 percent from the year-earlier period, down from growth rates of 2.9 percent in May and 5.2 percent in April, the Finance Ministry said. Economists had forecast a 2.4 percent increase in the month, according to the median of 16 forecasts in a Bloomberg survey.

Recovering U.S. demand has yet to reach Mexico, said economists such as Alfredo Thorne at JPMorgan Chase & Co. and Pedro Tuesta with 4Cast Inc.

``It's kind of striking,'' Tuesta said in a telephone interview from New York. ``The so called soft spot in U.S demand isn't there anymore but Mexico isn't reaping any benefit.''

Auto output, which accounts for 16 percent of Mexico's industrial production, dropped in June as General Motors Corp. and Ford Motor Co. drew down on inventories instead of ordering more vehicles to meet rising sales because of discounts, Thorne said. Mexico produced 127,980 vehicles in June, compared with 141,500 a year ago.

``U.S. auto sales have been strong but haven't translated into higher production for Mexico,'' said Alfredo Thorne, chief of Latin America research for JPMorgan Chase & Co.

The pickup in U.S. economic growth may lead to a quickening of growth in Mexico in the second half of the year, said Adolfo Albo, chief economist with Grupo Financiero BBVA Bancomer SA in Mexico City. U.S. industrial production grew 3.9 percent in June from the year-earlier period and factory utilization rates rose to 80 percent of capacity, the highest since December 2000.

``The worst is over,'' Albo said.

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To contact the reporter on this story: Patrick Harrington in Mexico City at  pharrington8@bloomberg.net

Bloomberg article at: http://www.bloomberg.com/apps/news?pid=10000086&sid=axtA1xGhYP14

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