December 15, 2016 / 1:41 PM / 2 years ago

UPDATE 3-Peru's economy grows at weakest pace in more than a year in Oct

(Adds unemployment rate, context on central bank)

LIMA, Dec 15 (Reuters) - Peru’s economy grew by a weaker-than-expected 2.12 percent in October from a year ago, the slowest expansion in more than a year as a sharp drop in construction activity dragged on a mining-powered recovery, government data showed on Thursday.

A Reuters poll had forecast a 3 percent expansion for October. In September the economy grew 4.1 percent.

Construction shrunk 16.51 percent year on year in October on stalled public works, state statistics agency Inei said, the sector’s worst monthly contraction in 12 years. Manufacturing, another sector vital to job growth, slumped 3.31 percent.

Mining grew 21.56 percent in October on the back of an ongoing surge in copper production from new and expanded mines commissioned during the commodities boom of the previous decade. But sectors linked to domestic demand, including retail sales, agriculture and services, grew by 2 percent or less.

The slowdown in October followed the July 28 start of the new government of President Pedro Pablo Kuczynski, a former Wall Street banker who has promised to bolster domestic demand by investing in infrastructure projects and cutting red tape.

But public investments by the central government fell 28 percent in October due to a lack of work on projects such as highways and bridges, compounding a similar contraction in spending by local governments, Inei said.

The unemployment rate was 5.8 percent in the Sept-Nov period, unchanged from the same period a year ago while underemployment rose by one percentage point.

October’s disappointing growth rate could build pressure for the central bank to consider lowering the benchmark interest rate. The bank is widely expected to hold the rate steady at 4.25 percent for the 10th month in a row later on Thursday.

The central bank said last month that the economy would likely grow by about 3 percent in the fourth quarter , which would mark a sharp slowdown from the 4.4 percent expansion in the third quarter.

The annualized economic growth rate slipped to 4.22 percent in October, from 4.34 percent in September, Inei said. In the first 10 months of the year the economy grew 3.98 percent from the same period a year ago.

The government has forecast a 4 percent expansion for this year, compared to 3.3 percent in 2015.

October’s activity rate was the weakest monthly reading since May 2015. Economic activity fell 0.3 percent in October from September on a seasonally adjusted basis, Inei said.

Reporting By Teresa Cespedes; Writing by Mitra Taj; Editing by Meredith Mazzilli and Andrea Ricci

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