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(Recasts with annual rate, adds background and unemployment data)
MEXICO CITY, March 24 (Reuters) - Mexican annual inflation in early March cooled more than expected to below the central bank's upper limit, backing bets that policymakers will leave interest rates on hold this year.
Inflation for the 12 months through the first half of March eased to 3.89 percent, data from the national statistics institute showed on Monday, below the 3.97 percent expected in a Reuters poll and a 4.23 percent rate in February.
A jump in consumer prices, due mostly to new taxes on soft drinks and junk food, pushed inflation above the central bank's 4 percent limit in January and February.
The central bank kept its benchmark interest rate on hold at 3.50 percent on Friday, pointing to slack in the economy while noting the spike in inflation had eased and was unlikely to spur wider price pressures.
Mexican economic growth sank to a four-year low of 1.1 percent last year on a downturn in factory output and construction, while wavering U.S. demand for local exports and weak consumption have cast doubt on the strength of a recovery this year.
Consumer prices rose 0.17 percent in the first half of the month, compared to the 0.22 percent forecast by analysts.
Core consumer prices, which exclude some volatile food and energy prices, rose 0.11 percent, below expectations for a 0.16 percent rise.
A separate report showed Mexico's seasonally adjusted unemployment rate fell to 4.73 percent in February, its lowest since November. (Reporting by Michael O'Boyle; Editing by Chizu Nomiyama)