SAO PAULO Brazil's retail sales smashed market estimates in March, growing more than the highest forecast in a Reuters poll of economists, in a positive reading for the country's broader first-quarter economic performance despite high interest rates.

Retail sales rose 0.8% in the month compared with February, data from statistics agency IBGE showed on Wednesday, largely beating consensus of a 0.8% drop in a Reuters poll of 13 economists, which had a 0.2% gain as maximum expectation.

"This monthly increase means sales have left their February stability to a result we can now consider growth," IBGE's research manager Cristiano Santos said in a statement.

He noted the March reading was driven by higher sales of office supplies and pharmaceutical products.

Pantheon Macroeconomics' chief economist for Latin America, Andres Abadia, said the result was a big surprise, pointing to upside risks to his forecast for first quarter GDP as the period was also "decent" for services spending.

"Looking ahead, we expect another decent increase in retail sales in Q2, as inflation continues to fall, offsetting the ongoing drag on incomes from high interest rates and a less supportive labor market," he added in a note to clients.

Retail sales in Latin America's largest economy also increased 3.2% in March on a yearly basis, coming way ahead of an expected 0.1% decrease and driving a 2.4% jump in the first quarter from the same period a year ago.

The highest response in the Reuters poll for the yearly data stood at an increase of 1.9%.

(Reporting by Gabriel Araujo; Editing by Steven Grattan)