UPDATE 1-Brazil industry expands in 2017, first in four years

(Adds details, context) SAO PAULO, Feb 1 (Reuters) - Brazil's industrial output expanded in 2017 for the first year in four due to a strong pickup in auto production, suggesting manufacturers kicked off the new year on a stronger footing. Industrial output rose 2.5 percent last year from 2016, official statistics agency IBGE said on Thursday, the largest yearly increase since 2010. Production grew 2.8 percent in December from November, surpassing even the top estimate in a Reuters poll of economists. The median forecast was a 1.3 percent increase.

The outlook for Brazilian manufacturers has turned favorable as borrowing costs fall and growth in Latin America's largest economy looks set to shift into a higher gear this year. Brazil's deepest recession in decades left industrial companies grappling with high debt loads and idle capacity, but booming car exports brightened their fortunes last year. That trend looks set to continue in 2018. Carmakers forecast another strong year of production, while record-low interest rates reduce funding costs and cheapen investments. Although a stronger global economy and a more favorable exchange rate have lifted demand for exported goods, Brazil's service sector is still contracting. An index measuring its activity has posted annual declines for each month since April 2015. Economists forecast Brazil's gross domestic product will grow in 2018 at its fastest pace in five years as low interest rates and contained inflation prop up consumer spending and capital expenditures slowly recover.

(Reporting by Bruno Federowski; Editing by Lisa Von Ahn)