UPDATE 1-Mexico annual inflation rises to 8-1/2 year high in June

(Recast with annual rate) MEXICO CITY, July 7 (Reuters) - Mexico's annual inflation rate rose to its fastest pace in 8-1/2 years in June, but the increase was less than expected and that could support the view that the central bank may pause after a string of interest rate hikes. Mexican consumer prices rose 6.31 percent in the year

through June , the national statistics agency said

on Friday, above the 6.16 percent rate in May but below a 6.34 percent forecast in a Reuters poll. It was the highest reading since December 2008. Last month, Mexico's central bank raised its benchmark interest rate for the seventh meeting in a row, but the market has tilted toward bets that inflation could soon peak and that policymakers could begin cutting rates next year. The annual core rate, which strips out some volatile food and energy prices, rose to 4.83 percent, in line with the

poll . Consumer prices rose 0.25 percent in June,

according to non-seasonally adjusted figures while he core index

rose 0.30 percent during the month .

(Reporting by Michael O'Boyle)