(Reuters) - Brazil's economy stalled in the third quarter, failing to grow as the emerging market giant became the latest country to feel the sting of a widening euro zone debt crisis and faltering global expansion.

Latin America's biggest economy posted zero growth from the second quarter, the government said on Tuesday, underscoring a sharp slowdown from breakneck growth of 7.5 percent last year that far outstripped developed nations.

The slowdown hit sectors that had been bright spots in Brazil, with household consumption dipping from the previous quarter. Capital spending - often considered a bellwether for future growth - also fell, as did industry, which has struggled for much of this year.

The most shocking aspect of the number was the fact that all demand components contracted, said Mauricio Rosal, chief economist at Raymond James & Associates.

The reversal in GDP dynamics is very worrisome, and the worst is that there's not much that can be done about it -- we depend on a solution to the problems in Europe.

The zero growth was in line with a Reuters poll of 25 analysts.The economy grew 2.1 percent compared to the year-earlier period, IBGE said. That was below expectations of 2.4 percent, according to the median forecast of 22 analysts in the poll.

Sharper monitoring of government spending by President Dilma Rousseff also helped brake growth, analysts said. Rousseff promised early this year to cut about 50 billion reais ($28 billion) from this year's budget in an effort to tackle stubbornly high inflation.

With annual inflation rates above a 6.5 percent target ceiling since April, Rousseff and her economic team are still unable to take strong fiscal stimulus steps for fear of stoking consumer prices.

I'm not impressed by this result because the government has been following a contractionist policy since the start of the year, said Andre Perfeito, an economist with Gradual Investimentos.

Adding to the grim tone, Brazil's relatively brisk growth earlier this year was also revised down.

The IBGE said the economy grew 0.7 percent in the second quarter from the previous three months - revised down from 0.8 percent - and by 0.8 percent in the first three months, down from 1.2 percent.

Consumer spending fell by 0.1 percent in the third quarter from the previous three months. The industrial sector also shrank, down 0.9 percent in the period, and capital spending fell 0.2 percent.

Tuesday's figures confirm that Brazil's economy is slowing sharply from last year's red-hot pace of 7.5 percent and is likely to post 2011 growth of around 3 percent.

The sputtering growth comes as Europe flirts with recession and China also shows signs of cooling.. Growth of around 3 percent is better than crisis-hit Europe but is well behind the pace of Brazil's big emerging market rivals such as India and China.


Monthly data from October and November suggest the slowdown is continuing and even deepening as the worsening euro zone crisis hurts demand for Brazil's exports, which are dominated by commodities such as iron ore and soy.

Industrial production figures for October showed factories cut their output for the third straight month.

President Dilma Rousseff's government has announced a slew of tax breaks to help support consumption, reprising its policy response in the wake of the 2008 financial crisis.

But analysts say the measures could have less impact this time around as Brazil's consumers approach the limits of their credit-fueled spending spree of recent years and inflation pressures remain stubbornly strong.

Citing the gathering global slowdown, the central bank has since August cut interest rates three times by a total of 150 basis points to 11 percent. While the first cut on Aug. 31 stirred some economists' doubts over central bank head Alexandre Tombini's inflation-fighting credibility, analysts have begun calling him a potential trendsetter as the 17-nation euro zone threatens to dissolve.

Tombini says he believes inflation will slow in coming months from its annual pace in mid-November of 6.69 percent, which could give the bank room to cut interest rates further in a bid to support flagging growth.

Consumer spending could also be pressured in coming months. Bank lending growth slowed in October from September, even as default rates rose, suggesting Brazilians could be nearing the limits of how much personal debt they can maintain.