Wed Oct 24, 2012 1:40pm EDT
* President extends tax cut due to expire Oct 31
* Stimulus boosted auto industry since May, impact flagging
* Rousseff says policies to reduce role of car imports
SAO PAULO, Oct 24 (Reuters) - Brazil will extend tax cuts for local carmakers through the end of the year, President Dilma Rousseff announced on Wednesday, extending a key economic stimulus measure in the world's fourth largest auto market.
The auto industry makes up more than a fifth of Brazil's industrial output and 5 percent of its gross domestic product.
The cut in the so-called IPI tax results in reducing the price to consumers by about 7 percent on average. The government jump-started car sales in May with the tax reduction, leading to record new automobile sales in August.
But repeated extensions of the tax cuts -- previously valid through the end of October -- have had diminishing returns, and auto sales slumped in September.
Production levels have been slower to recover, as the industry focused on clearing inventories from the first half of the year.
Rousseff also said her latest policies governing the auto industry would reduce the weight of imported vehicles in the Brazilian market -- one of the few bright spots for a glum global auto industry.
"We will continue importing, but what we won't do is import above all else," Rousseff said at the Sao Paulo auto show.
A steep tax hike on imported cars and auto parts, aimed at protecting Brazilian jobs and encouraging more capital spending, has accelerated some investments in the country and scrambled plans for others.
Sales of imported automobiles slipped 2 percent in the first nine months of 2012 from a year earlier to about 597,000 vehicles, according to national automaker association Anfavea, making up about 21 percent of sales in the year so far.
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