UPDATE 1-Brazil set for steep rate cut despite political storm

(Adds analyst comment, April jobless data)

BRASILIA, May 31 (Reuters) - Brazil's central bank is widely expected to maintain its rapid pace of interest rate cuts on Wednesday despite a political crisis that has clouded the future of an economy slowly emerging from its worst recession ever.

Corruption allegations against President Michel Temer, which threaten to unseat the center-right politician and derail his economic reform agenda, have tempered investors' initial bets for an even more aggressive monetary easing cycle.

Less than two weeks ago, before accusations that Temer took bribes from major meatpacker JBS SA became public, many analysts believed the bank was set to cut rates by 125 basis points, with its benchmark Selic rate seen dropping below 8 percent by the end of this year from the current 11.25 percent.

Most economists surveyed in a Reuters poll last week, however, now expect the bank to opt for a second straight cut of 100 basis points and continue reducing the Selic until it reaches 8.5 percent by December.

"Given the political uncertainties and the clouds hovering above the fiscal policy outlook, we expect monetary authorities to proceed much more cautiously," Gustavo Rangel, an economist with ING, wrote in a note to clients.

The scandal has put at risk Temer's proposal to reduce mounting pension expenditures, which the central bank has highlighted as crucial to keep inflation at bay and rescue an economy showing signs of recovery after two years of recession. Temer has denied he took bribes and vowed to resist calls to resign.

Brazil's gross domestic product probably expanded by 1.0 percent in the first quarter from the last three months of 2016, according to the median forecast of 20 economists surveyed by Reuters. The official data is due out on Thursday at 9 a.m. (1200 GMT).

In another sign of recovery, Brazil's jobless rate fell unexpectedly in the three months through April from a record high.

A delay or further watering down of Temer's pension reform could not only hamper business and consumer confidence, but also prevent efforts to plug a widening fiscal gap that reached over 10 percent of GDP last year.

Rangel said the bank could signal it will remain cautious ahead in the decision statement.

The central bank's chief, Ilan Goldfajn, has reiterated that political turmoil will not dictate monetary policy that remains focused on inflation, which in mid-May fell well below the 4.5 percent official target. (Reporting by Alonso Soto; Editing by Leslie Adler and James Dalgleish)