MEXICO CITY, Feb 11 (Reuters) - Mexican industrial production fell more than expected in December as factory output shrank at its fastest pace in more than a year, pointing to a fragile economic recovery and suggesting that borrowing costs will remain low.
December industrial activity fell 0.5 percent compared with November, the national statistics agency said on Tuesday, falling short of estimates for a 0.2 percent rise in a Reuters poll. The expansion in November was revised up to 0.25 percent from an previously reported 0.1 percent.
The contraction backs expectations of steady interest rates this year. The central bank held its main rate steady at a record low of 3.5 percent on Jan. 31, arguing that sluggish growth would offset a surge in inflation from new taxes.
Factory output, a component of industrial production, fell by 1.1 percent in December compared with November, the sharpest drop since October. 2012. Mexico exports mostly manufactured goods.
Mexico sends nearly 80 percent of its exports to the United States.
Mexican construction activity rose nearly 0.2 percent in December compared with November.
It was the second straight monthly expansion in construction, which contracted most of last year.
Also in December, utilities rose 1.3 percent while mining shrank 0.9 percent, as compared with November.
Manufacturing, utilities, construction and mining are all components of industrial production, as measured by the national statistics agency INEGI.
For 2013 as a whole, wavering U.S. demand combined and a sharp drop in Mexican construction activity to drag on Latin America's No. 2 economy last year.
Mexico's economy is seen growing 3.4 percent this year, up from a projected 1.2 percent rate last year, according to the median of a poll last week from Citigroup unit Banamex.
Industrial output fell 0.3 percent in December from a year earlier, compared to expectations for a 0.75 percent increase.