Mexico's economy contracts more than expected, recovery could hinge on World Cup

* All sectors declined, with primary seeing the sharpest dip

* Analysts expect World Cup to aid near-term recovery

* Weak GDP data could pressure central bank to cut rates (Adds analyst quotes in paragraphs 4 to 6, details and context throughout)

By Aida Pelaez-Fernandez

MEXICO CITY, April 30 (Reuters) - Mexico's economy contracted 0.8% in the first quarter from the previous three-month period, preliminary data showed on Thursday, an unexpected slowdown ahead of the FIFA World Cup in June that analysts expect to lightly boost growth.

The decline in Latin America's second-largest economy was wider than the 0.5% contraction forecast from economists polled by Reuters. The economy expanded 0.9% in the prior quarter, according to final data.

"Near-term momentum remains subdued, but we still anticipate a gradual recovery supported by firmer domestic demand and a modest boost from the 2026 FIFA World Cup" soccer tournament, Itau chief economist Mario Mesquita said in a note.

Itau estimates that the World Cup, which Mexico is co-hosting along with the U.S. and Canada, will add 0.1 percentage point to Mexico's annual gross domestic product growth forecast at 1.1% for 2026, compared with growth in 2025 of 0.8%.

Still, analysts expect global trade tensions to weigh on growth and to impact decisions by the Bank of Mexico, also known as Banxico.

Capital Economics analysts said there is a strong case for a rate cut of 25 basis points at Banxico's meeting next week.

"In the past, disappointing GDP releases have prompted Banxico to act," they said in a note.

The central bank's decision in March to cut its benchmark interest rate by 25 basis points to 6.75% was divided, with board members signaling the need for greater caution.

DECLINES ACROSS THE BOARD

All sectors in Mexico's economy registered declines during the January-to-March period. The primary sector had the sharpest dip, down 1.4%.

Secondary and tertiary activities, respectively covering manufacturing and services, declined 1.1% and 0.6% in a sequential basis.

Compared with the same period a year earlier, growth in the first quarter was a modest 0.1%, below economists' expectations for 0.8%. (Reporting by Aida Pelaez-Fernandez and Jorge Ollero; Additional Reporting by Noe Torres; Editing by Andrew Cawthorne and Bernadette Baum)