* Swiss Q4 GDP up 0.9 percent q/q vs poll of 0.5 percent
* Swiss PMI for Feb up at 63.5 pts, higher than any forecast
* Goods exports, company investment, consumer spending rise
* Markets bring forward expectation for SNB rate hike
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By Catherine Bosley and Sven Egenter
ZURICH, March 1 (Reuters) - The Swiss economy grew at its fastest pace since late 2007 in the fourth quarter, gaining more momentum than expected despite the record-high franc and prompting markets to brace for an early rise in interest rates.
The economy expanded 0.9 percent in the last three months of 2010 from the previous quarter, thanks to strong company investment, government consumption and a rise in exports of goods, official data showed. Economists had expected a slowdown.
Switzerland has been a destination for investors worried by unrest in North Africa and the euro zone's debt crisis, driving the franc to record highs against the dollar and euro that have prompted complaints from exporters like watchmaker Swatch Group .
But forward-looking indicators, such as the KOF economic barometer, have indicated growth is still robust and the Swiss National Bank, which had forecast a significant slowdown due to the rallying franc, has also begun to sound less dour on growth.
"The GDP data continue to challenge the SNB's expectation of a significant slowdown in growth in response to the sharp appreciation of the exchange rate," said BNP Paribas economist Eoin O'Callaghan.
"The longer the economic data defies the SNB's prediction of a significant slowdown, the more compelling the case for starting the hiking cycle becomes."
In another sign of the upswing continuing, the Swiss purchasing managers' index beat expectations and jumped to a seasonally adjusted 63.5 points in February, indicating the sector was picking up steam.
The Swiss government had to bail out its largest bank UBS during the financial crisis but the rest of the financial sector, worth around 10 percent of GDP, has held up even as global regulators tightened controls on the sector.
Swiss hoteliers have complained this year about the rising franc and there have been calls for the central bank to take further action to help exporters of both goods and services.
Sales by major pharmaceuticals firms like Roche and Novartis have held up well, however, and Swatch also sounded less worried on Tuesday about the franc's impact as it targeted record watch sales in 2011.
SNB HIKE COULD COME SOONER
The SNB, which so far forecast a slowdown of growth to around 1.5 percent this year from 2.6 percent in 2010 due to the franc, holds its next quarterly meeting on March 17. More and more analysts see the economy growing by more than 2 percent.
The SNB is seen holding rates for now because inflation is low, but markets have started bracing for an earlier rate hike than so far anticipated after a string of upbeat news.
"I expect another year of strong growth. Despite the strong franc, that should open the possibility for the SNB to start normalising policy from June," said Julius Baer economist Janwillem Acket.
Interest rate futures price in a high chance of the SNB raising in September its target for the 3-month franc LIBOR, which has been at 0.25 percent since March 2009. Until last week markets were betting on a rate rise in December.
The Swiss GDP figures were not, however, the strongest in Europe. Sweden's growth surged 1.2 percent in the fourth quarter from the third, also trouncing forecasts.
"The PMI remaining very buoyant, the Swiss economy seems to be able to cope with the strong franc better than many have expected," said Citi economist Michael Saunders, adding he expects growth to clock in near 3 percent this year.
The franc rose against the euro on the release of the GDP figures but then weakened again and was trading at 1.2868 per euro at 1106 GMT, off an intra-day high of 1.2816 per euro.
Swiss exports of goods rose 2.4 percent in the fourth quarter from the third, a sign the franc had little effect thus far. That trend continued in January, when exports also rose, trade data showed last week.
The franc's strength did, however, show up in the exports of services, which fell 5.8 percent, the GDP data showed.
Some of the decline in service exports was due to tourism, Acket said. Swiss hoteliers have been complaining the strong currency has spoiled the winter skiing season.
Private consumption grew 0.3 percent in the fourth quarter from the third. Government consumption increased by 1.2 percent in that period while company investment rose 6.3 percent and construction was 1.2 percent stronger.
Gross domestic product increased by 3.1 percent year-on-year in the fourth quarter, compared with a forecast of 2.8 percent.