(Adds comment, market reaction)
By Jamie McGeever
BRASILIA, May 9 (Reuters) - Brazilian retail sales in March posted their biggest annual decline in over two years, government statistics agency IBGE said on Thursday, adding to concerns the economy struggled badly, and possibly contracted, in the first quarter.
Coming a day after the central bank kept its benchmark Selic rate on hold at 6.50 percent, the figures give further weight to the view that the economy will stagnate this year and add to calls for a cut sooner rather than later, economists say.
Brazilian markets fell, with the real sliding more than 1 percent closer toward 4.00 per dollar and the Bovespa stock index falling 1.3 percent to 94,383 points.
"The data made for pretty bad reading and are likely to keep the recent discussions about the possibility of an interest rate cut going," said William Jackson, chief emerging market economist at Capital Economics.
"As things stand, it’s looking increasingly unlikely that the economy will register stronger growth this year than last."
Retail sales slumped 4.5 percent compared with the same month last year, the biggest such decline since December 2016, IBGE said, and far weaker than the median forecast of a 2.6 percent drop in a Reuters poll of economists.
Compared with the prior month, sales rose 0.3 percent in March, well below the 0.8 percent rise forecast in the poll.
All in all, retail sales in the first quarter of 2019 rose by only 0.3 percent from a year earlier, the weakest quarterly performance in two years.
On Wednesday, the central bank's rate-setting committee noted that the economy's weak performance of late last year had spilled over into this year, but gave no indication it is in any rush to cut rates.
But more data like Thursday's retail sales in coming weeks, culminating in official gross domestic product growth figures for the first quarter on May 30, might change their thinking.
"The retail sector's performance in the first quarter confirms that the economy contracted in the period," said Jose Francisco Goncalves, chief economist at Banco Fator. "It is looking more and more likely that the economy will stagnate this year."
Sales of pharmaceutical and medical products, perfumes and cosmetics rose 1.4 percent from February, giving the biggest boost to the monthly increase, followed by a 0.7 percent rise in sales of other personal and domestic goods, IBGE said.
Sales in five out of eight areas covered by the IBGE survey fell, led by a 0.4 percent decline in supermarket, food and drink and tobacco sales. On an annual basis, the segment slumped 5.7 percent, accounting for more than 60 percent of the overall year-on-year decline, IBGE said. ($1 = 3.9760 reais) (Reporting by Jamie McGeever; editing by Bernadette Baum and Jonathan Oatis)