Chile peso sinks on firm dollar, stocks up

SANTIAGO Nov 20 (Reuters) - Chile's peso CLP=CL ended slightly weaker on Friday, recovering from earlier steep losses as traders sold U.S. dollars to lock in profits, while stocks shot up in late trading on a brighter market outlook.

The peso fell 0.1 percent to 501.20/501.70 per dollar after falling sharply on wider dollar strength and global stock losses. The peso closed at 500.70/501.20 on Thursday, posting its biggest daily drop in nearly seven months. Earlier this week the peso had flirted with 17-month highs.

"The market overreacted in early trade, closing (dollar) positions motivated by a fairly negative external outlook and because the dollar had been strengthening against other major currencies in recent days," said one trader.

"When the exchange rate hit 508 pesos per dollar, there was an increase in dollars offered due to profit-taking, which enabled the peso to recover almost all of the ground lost early in the day," he added.

Traders said a fresh central bank warning on Thursday of possible intervention to curb peso appreciation of around 27 percent against the dollar year-to-date added only marginal pressure to the currency.

The dollar rose abroad on Friday, extending gains from the previous session as investors shied away from riskier assets, while murmurs of capital controls weighed on some emerging markets.

Russia's rouble continued to retreat from 2009 highs on central bank rhetoric about possible measures and rate cuts to stem speculative capital flows, while Brazil's real continued to depreciate a day after weakening on concerns over a new government tax aimed at curbing the currency's sharp appreciation.

The peso has been one of the best-performing emerging market currencies this year against a weaker U.S. dollar and is still trading around 16-month highs. Some analysts expect the central bank to intervene if it hits 480 per dollar.

On stocks, Chile's blue-chip IPSA share index .IPSA pared early losses to close 0.77 percent higher at 3,289.60 points, on an imported market outlook, traders said. The all-market IGPA .IGPA rose 0.60 percent to 15,509.60.

"The market was slow until 3 p.m. and then investors began buying, I think on improved expectations for next week," said Pablo Matte, a trader with BICE brokerage. "In general, stocks have been punished over the last few days, investors saw the prices as attractive and started buying."

Conglomerate Copec COP.SN, the most heavily weighted share on the Santiago bourse, surged 3.05 percent to 7,275 pesos.

Chile-based regional energy group Enersis ENE.SN, climbed 0.61 percent to 191 pesos.

Cencosud CEN.SN, one of Latin America's largest retailers, rallied after several days of losses on speculation that Peru's Wong family could sell it's 2.28 percent stake in the company. Cencosud rose 0.79 percent to 1,510 pesos.