UPDATE 4-Venezuelan economy contracts more slowly in 2nd qtr

* Contraction is less than analysts expected

* Oil GDP shrinks 2.0 pct, non-oil 1.7 pct

* State oil firm to sell $2 bln debt "soon" - Chavez (Adds planned debt issue)

By Daniel Wallis

CARACAS, Aug 19 (Reuters) - Venezuela's economy shrank in the second quarter but less than analysts expected, signaling that South America's biggest oil exporter may be starting to pull out of a stubborn recession that began more than a year ago.

Gross domestic product for the three month period was 1.9 percent smaller than in the same quarter last year, the central bank said on Thursday. In the first trimester of 2010, the economy shrank by an eye-watering 5.2 percent

President Hugo Chavez's government is likely to point to the better-than-expected figures released on Thursday as evidence that the OPEC member country has turned a corner ahead of legislative elections next month.

Separately on Thursday, Chavez said state-run oil company PDVSA was planning to issue $2 billion in bonds "soon." [ID:nN1982218]

Oil sector gross domestic product contracted by 2 percent -- the sixth consecutive quarterly contraction since the start of 2009 -- while the non-oil sector shrank by 1.7 percent, the bank said in a statement.

Though the government will be cheered by the contraction, which the central bank said was the smallest of the last four quarters, analysts expect Venezuela will still be the only country in the region to see its economy shrink during 2010.

The economy contracted 3.3 percent in 2009, falling into recession after a five-year bonanza of growth and spending fueled by high oil prices.

Roberto Bottome, director of local think tank VenEconomia, said the second quarter was better than anticipated.

"We thought it was going to be quite similar to the first quarter," he said. "It surprised me."

Chavez's government has been battling one of the world's highest inflation rates, which peaked at 5.2 percent in April, following a devaluation in January of its bolivar currency.

The 12-month inflation rate to July was 30.5 percent, creating what economists call "stagflation," a period when an economic slump fails to cool runaway prices.

Venezuela's economic woes are high on the agenda of voters who will cast ballots in parliamentary elections on Sept. 26. These elections are seen as an important test of Chavez's policies and popularity ahead of a presidential poll in 2012.

The central bank said Venezuela posted a $2.621 billion surplus in its balance of payments for the second quarter.

The bank said there was a general slowdown in the rate of contraction in some sectors in the second quarter, while significant growth continued in other sectors, like communications, which grew 6.5 percent.

It said temporary factors contributed to the overall contraction, including an electricity-rationing program that ended in June, and a new foreign currency system launched in June had also helped slow the rate of economic decline.

Asdrubal Oliveros, director of the Ecoanalitica consultancy in Caracas, said he had expected the power shortages and other factors would have had a bigger impact on the second-quarter figures.

"I would like to see an explanation from the central bank about the methodology they used, because economists were expecting a contraction of at least 4.0 percent," he said. "For the first time, I cannot see logic in the GDP results."

The $2 billion bond issue announced by Chavez adds to $3 billion sovereign debt sold earlier this month.

(Additional reporting by Diego Ore and Marianna Parraga; Editing by Andrew Cawthorne, Leslie Adler and David Gregorio)