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UPDATE 1-Deflation strengthens case for bold interest rate cut in Brazil

(Adds market reaction, background on interest rates) BRASILIA, July 7 (Reuters) - Consumer prices in Brazil fell in June at the fastest monthly pace in nearly 19 years, sending the annual inflation rate to the bottom-end of the official target range and bolstering the case for another deep interest rate cut this month. Prices as measured by the benchmark IPCA index fell 0.23 percent in June, the first deflation rate since June 2006 and the fastest drop in prices since August 1998, government statistics agency IBGE said on Friday. The annual inflation rate dropped to 3.00 percent, down from 3.60 percent in the 12 months through May and below the 3.06- percent rate forecast in a Reuters poll of economists. The official inflation target for 2017 is 4.5 percent, with a tolerance range of 1.5 percentage point. Yields on interest rate futures were down as traders added bets on a 100-basis-point interest rate cut at the next central bank's monetary policy meeting on July 26. The bank had previously signaled that it could reduce the pace of cuts to 75-points per meeting because of growing political uncertainty, but has moderated its tone in recent speeches as market volatility ebbed and price rises continued to slow. Inflation has slumped from nearly 11 percent in early 2016 as a deep recession ended earlier this year left the economy operating well below its capacity. As inflation slows, the government lowered its goal for 2019 and 2020 last week, in the first target reduction in more than a decade. For detailed results, see

(Reporting by Silvio Cascione)