GDP expanded 1.4% in the three months to June 30 on a sequential basis, accelerating from the revised 1.0% growth recorded in the first quarter.

Brazil's economy surprised on the upside in the second quarter as strength in its services and industrial sectors offset the impacts of deadly flooding in a southern state, reinforcing expectations for a strong full-year performance.

Gross domestic product (GDP) expanded 1.4% in the three months to June 30 in sequential terms, accelerating from the revised 1.0% growth recorded in the first quarter, statistics agency IBGE said on Tuesday.

The quarterly performance was above the 0.9% increase expected in a survey of economists. Year-on-year growth reached 3.3%, exceeding the 2.7% increase projected in the survey.

The stronger-than-expected data raised bets on interest rate futures for a 50-basis-point hike at the central bank's next policy meeting on Sept. 17-18 to a 40% probability, compared with a 60% chance of a 25-basis-point increase.

There was earlier a stronger consensus for a 25 basis point hike, especially after central bank President Roberto Campos Neto said the bank remained data-dependent and any rate adjustment, if needed, would be gradual.

"The overall data suggest a resilient economy and the exchange rate has not recovered. In other words, two key conditions for a rate hike are met," said José Francisco Goncalves, chief economist at Banco Fator, who expects a 25 basis point increase.

The central bank's benchmark interest rate has remained at 10.50% since June.

On the supply side, the main contribution to the Brazilian economy in the second quarter came from the industrial sector, which expanded by 1.8% compared to the previous quarter.

The services sector, the driving force behind Latin America's largest economy, also contributed, with an increase of 1.0% compared to the first quarter. The agricultural sector, meanwhile, decreased by 2.3%.

On the demand side, fixed business investment rose 2.1%, while household consumption, boosted by a strong labor market, increased 1.3%, the same growth rate recorded by government spending.

"The pace of growth is expected to remain strong, further boosted by the momentum of a warming labor market and improved credit conditions for households and businesses compared with a year ago," the Finance Ministry said in a statement, adding that it will revise its GDP projection upwards on Sept. 17.

Speaking to reporters, Finance Minister Fernando Haddad said annual expansion could exceed 2.7% or 2.8%. In July, the government had kept its GDP growth forecast unchanged at 2.5% for the year.

In May, floods devastated the state of Rio Grande do Sul, killing more than 180 people and displacing hundreds of thousands, prompting a series of federal government relief measures totaling more than 27 billion reais ($4.8 billion).

Many economists believe that this assistance mitigated the expected losses from the disaster.