* Rate cuts are spurring trading volumes, CFO says
* Risk is that market mood worsens, analysts warn
* Shares gain modestly despite slight earnings miss
SAO PAULO, May 11 (Reuters) - A decline in Brazilian interest rates that may stretch for the coming months is fanning stronger-than-expected growth in trading volumes for rate futures contracts at BM&FBovespa, especially for the longer maturities, Chief Financial Officer Eduardo Guardia said on Friday.
The so-called BM&F derivatives segment at the exchange operator, the world's third largest, is benefiting from expectations that rates in the country may soon hit record lows, Guardia said on a conference call to discuss first-quarter earnings.
Investors bet on the so-called DI contracts as a way to predict the level of the central bank's benchmark overnight lending rate in a certain period. Policymakers have signaled that a weak global economy will help keep inflation at bay in coming months, signaling that borrowing costs may end the year lower than the current 9 percent.
The Selic fell to a record low 8.75 percent in the aftermath of the global financial crisis of 2008.
"Volumes in the BM&F segment are reacting positively" to expectations of lower rates, Guardia said. "We see that volumes are growing above trend in the long end of the curve."
The rate future contract due in January 2014 was the most widely traded in the exchange in early Friday trading, with the yield falling to 8.37 percent from 8.46 percent the prior session. Yields fell across the board, with the biggest declines concentrated on the longer-termed contracts.
Shares of BM&FBovespa rose 0.3 percent to 10.16 reais on Friday. The stock is up 4.4 percent this year.
The São Paulo-based company said late on Thursday that first-quarter net income slightly missed analysts' expectations despite a tumble in operating expenses. The São Paulo-based company earned 280.4 million reais ($143 million) during the quarter, up 3.6 percent from a year earlier.
The result was below the 282.9 million reais average estimate of nine analysts in a Reuters poll, mainly because the company's effective tax rate rose significantly and financial expenses climbed.
Net revenue rose 6.5 percent to 502.8 million reais, slightly above the 500 million reais predicted in the poll. Earnings before interest, tax, depreciation and amortization - a measure of cash flow known as EBITDA - rose 20 percent to 368.3 million reais, topping the forecast of 337.1 million reais in the period.
Revenue per contract at the equities and derivatives segments rose, while cash-equity margins edged higher after the share of high-frequency trading fell slightly on a sequential basis.
Trading of DI contracts in BM&FBovespa is growing despite a modest rise in risk aversion in local financial markets, especially in the equities segment, over the past six weeks.
The stronger volumes and successful efforts to streamline expenses have moderated optimism among analysts and investors. However, some of them warned that if the market mood suddenly shifts to a more bearish view, revenue at the exchange could suffer.
"If higher risk aversion stays for longer, volumes could be negatively impacted, increasing the downside risk to our estimates," Victor Schabbel, an analyst with Credit Suisse Group, wrote in a note to clients.