WRAPUP 2-Chile cuts 2009 GDP view, to use $4 bln more savings

(Updates with central bank report)

SANTIAGO, June 15 (Reuters) - Chile slashed its 2009 GDP outlook on Monday and said it would tap an extra $4 billion in sovereign wealth fund savings to finance an expected jump in the fiscal deficit as the global crisis hits tax revenues.

The government cut its 2009 gross domestic product outlook to a range between a 0.75 percent contraction and 0.25 percent growth from a previous forecast for 2.0 to 3.0 percent growth, drawing in line with central bank forecasts, and sharply raised its 2009 fiscal deficit forecast.

It raised its outlook for the 2009 fiscal deficit to 4.9 percent of GDP from 2.9 percent.

"In response to falling tax income and monthly pension payments due to the global crisis and as part of an anti-cyclical effort to support economic activity and employment, the Finance Ministry will use an additional $4 billion," the ministry said in a statement.

The central bank is already converting $3 billion dollars worth of repatriated savings into pesos on the local market under a $4 billion government fiscal stimulus plan unveiled in January and aimed at fending off the global crisis.

It will convert the additional $4 billion dollars, tapped from around $20 billion worth of sovereign wealth fund savings, in $40 million installments from July 1.

The Finance Ministry said in a statement it would also issue $1.7 billion worth of bonds on the local market via the central bank.

Separately, the central bank said it would buy back $1 billion worth of bonds with maturities of 5 years or more and suspend for the rest of the year issuance of bonds with similar maturities.

Like its Latin American peers, Chile's economy has slowed sharply in recent months as global crisis hit demand for commodity exports and choked internal demand.

The Chilean economy contracted 2.1 percent in the first quarter from a year earlier. According to government methodology, the economy will enter recession after two successive year-on-year quarterly contractions if the analysts' second-quarter outlook is confirmed.

But analysts say that, by the standards of many developed countries, Chile is already in recession.

Chile's economy will likely contract 3 percent in the second quarter and shrink 1.0 percent in 2009, a new central bank poll of financial analysts showed last week.

Chile's last year of economic contraction was 1999.

The economy contracted in April at its fastest rate in a decade, compared to the year-earlier month, and consumer prices fell for the second straight month, reinforcing expectations for a new 50 basis points central bank rate cut at its next monetary policy meeting on Tuesday.

Chile's central bank has led the charge in Latin America to cut interest rates, aggressively cutting its benchmark rate by 700 basis points so far this year. Its target overnight lending rate currently stands at record low of 1.25 percent.

The bank's poll of analysts, published last week, saw annual inflation falling to 0.2 percent in the 12 months through December from 3 percent in the 12 months through May.

The central bank said on Monday short-term inflationary pressures were moderating.

In a report prepared by the bank's research department and given to the monetary policy board to evaluate in making its decision, the central bank said "underlying inflationary pressures had eased somewhat, which could compensate for the impact of higher local fuel prices in the consumer price index." (Reporting by Rodrigo Martinez and Antonio de la Jara; Writing by Simon Gardner; Editing by Gary Hill)