Brazil economic activity posts unexpected drop in May

BRASILIA, July 14 (Reuters) -

Brazil's economic activity unexpectedly fell in May, central bank data showed on Monday, dragged down by a sharp drop in the farm sector along with declines in tax revenue and industrial output.

The IBC-Br index, a leading indicator of gross domestic product (GDP), fell 0.7% in May from April on a seasonally adjusted basis, well below the flat reading expected in a Reuters poll.

The decline was driven by a 4.2% drop in agricultural output, which is typically stronger in the earlier months of the year in Latin America's largest economy.

Even excluding the farm sector, activity remained in negative territory, down 0.3% on the month, reflecting the impact of the central bank's aggressive monetary tightening to curb inflation.

Since last September, policymakers have raised interest rates by 450 basis points to a near 20-year high of 15%.

While services, the main engine of Brazil's economy, were flat in May, tax revenue fell 1.0% and industrial output declined 0.5%, according to the IBC-Br breakdown.

On a year-over-year basis, the index rose 3.2%, and was up 4.0% in the 12 months through May. (Reporting by Marcela Ayres; Editing by Kevin Liffey and Gabriel Araujo)