* Central bank to reasses impact of upbeat GDP outlook on demand, inflation

MANILA, Philippines - The Philippine government expects to increase its 2010 growth target, currently set at 2.6 to 3.6%, after surprisingly strong first-quarter growth data, Economic Planning Secretary Augusto Santos said on Thursday.

Santos said he expected the 7.3%  pace of annual growth in the first quarter to be sustained in the second quarter.

The economy grew a seasonally adjusted 3.%  in the March quarter from the December quarter, much higher than forecasts of 0.8% growth.

On the other hand, the central bank or the Bangko Sentral ng Pilipinas said it  will review its outlook for demand and inflation after the surprisingly robust first-quarter economic growth.

"We will reassess to see how this more upbeat GDP outlook would impact on investor sentiment, domestic demand and inflation expectations, as well as our inflation forecast," central bank governor Amando Tetangco said in a mobile text message to reporters on Thursday.

 "The better-than-expected Q1 GDP bodes well for a possible upgrade of the growth outlook," he said.

Analysts said that despite the forecast-beating first quarter GDP,  the central bank will keep rates on hold for some time yet amid increasing uncertainties following Europe's debt crisis.

The National Statistical Coordination Board said first quarter growth was buoyed by global recovery, election spending and increased remittances from overseas Filipinos. It  exceeded the government's 2.9% to 3.9% growth projection for the quarter.

"This is a pattern we have seen across Asia for the first quarter. But we are facing new headwinds such as financial headwinds from Europe," said Jun Trinidad, an economist at Citiggroup in Manila.

"The economy will likely head back to trend growth in the coming quarters and heading back to trend growth will also be challenging in this environment. While a GDP forecast upgrade is definitely forthcoming in the light of this
data, it wouldn't be a lot."
 
The central bank has said it was watching the market  turmoil caused by Europe's debt concerns and tensions on the Korean peninsula for any impact on domestic demand and prices, a factor it would weigh at its monetary policy meeting next week.

Most analysts expect the central bank to keep rates steady at a record low 4.0% at its June 3 meeting, with a hike likely in the third quarter.

But the euro zone's debt crisis could dampen global demand and push back the timing of the expected policy tightening.