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Brazil economic activity stagnates as stimulus falters

* IBC-Br index falls 0.12 percent in third quarter

* Index drops 0.01 percent in September from August

By Silvio Cascione

SAO PAULO, Nov 14 (Reuters) - Brazil's economic activity failed to grow in September and showed a decline in the third quarter, central bank data showed on Thursday, the latest evidence that a timid recovery boosted by rising government spending was short-lived.

The central bank's IBC-Br economic activity index stood largely unchanged in September from August, with a decline of 0.01 percent in seasonally adjusted terms. The median estimate in a Reuters survey of 21 analysts was for an increase of 0.3 percent.

The index, a gauge of activity in the farming, industry and services sectors, fell 0.12 percent in the third quarter, compared with an increase of 0.84 percent between April and June.

The IBC-Br is seen as a proxy of gross domestic product data, even though it failed to capture a strong rebound in economic growth in the second quarter. Third-quarter GDP data is due on Dec. 3.

Brazil's economy gained steam in the first half of this year, escaping from a near-recession after President Dilma Rousseff's government cut taxes, slashed interest rates and boosted public spending. However, that stimulus has been partly withdrawn as it fueled inflation and raised the threat of a credit downgrade because of the spending spree's impact on government finances.

Economists in a weekly central bank poll expect Brazil's economy to grow a median 2.5 percent in 2013 and 2.1 percent in 2014.

Over September 2012, the IBC-Br index rose a nonseasonally adjusted 3.33 percent.