UPDATE 1-Brazil's services sector comes in below forecasts in September

(Recasts, adds economist comment, detail, file photos)

By Camila Moreira

SAO PAULO, Nov 14 (Reuters) -

Brazil's services activity ended the third quarter below forecasts with its second monthly drop in a row, frustrating economists who were expecting a small increase from the previous month.

The Brazilian service sector shrank 0.3% in September compared to August and 1.2% from September 2022, the local Institute of Geography and Statistics (IBGE) said on Tuesday, below the 0.3% and 0.5% rises projected in a Reuters poll.

The services sector, which accounts for about 70% of all activity in Latin America's largest economy, has shown mixed results throughout the year.

On the one hand, it has been favored by a heated job market and fiscal stimuli, but on the other hand, high interest rates are still weighing on it, hindering consumer spending even as the central bank eases its monetary policy.

"Although coming from historically high comparison basis, the sector is starting to feel the effects of contractionary monetary policy," Highpar economist Maykon Douglas said.

"This corroborates a scenario of weaker activity in the third quarter."

At the beginning of the month, the central bank made a third 50-basis-point cut in the benchmark interest rate to 12.25%, and said that its board of directors foresees equivalent reductions in the next few meetings. (Reporting by Camila Moreira; Additional reporting by Gabriel Araujo; Writing by Steven Grattan; Editing by Nick Zieminski)