Chile stocks off 2 pct on euro zone fears, peso up

* Stocks down 2 pct on euro zone debt worries

* Bourse lost 4 pct in back-to-back sessions

* Peso retraces early losses on growth data, rises 1 pct

By Aaron Nelsen

SANTIAGO, Feb 5 (Reuters) - Chile's benchmark share index tumbled in volatile trade on Friday, dragged lower by euro zone sovereign debt worries, while the peso rose 1 percent on better-than-expected December growth data.

Chile's IPSA blue-chip share index .IPSA shed 2.06 percent in volatile trade to end at 3,696.24 points, further retreating since setting a record closing high of 3,853.58 set on Tuesday.

The all-market IGPA .IGPA closed 1.75 percent lower at 17,191.53.

The IPSA had sunk 4 percent in back-to-back sessions. The blue-chip index is still trading about 3 percent higher year-to-date and is seen ending 2010 around 15 percent higher.

"Yesterday's and today's losses are explained mainly by noise of sovereign debt worries in Greece, Spain and Portugal," said Diego Larach, head of research for BICE Inversiones brokerage in Santiago. "Foreign markets are retreating and investors try to shield themselves, moving to less risk and taking money out of (emerging markets), that's probably what's taking place in Chile."

European policymakers on Friday scrambled to reassure markets about the stability of the 16-nation currency bloc as investors shed euro-denominated assets for a second straight day amid fears about debt-laden member states Greece and Portugal. For full story, see [ID:nN05139596]

Chile's leading electricity generator Endesa END.SN tumbled 3.06 percent to 881.99 pesos, while Chile-based regional energy group Enersis ENE.SN, slid 4.18 percent to 226 pesos per share.

Shares of Chile forestry group CMPC CAR.SN fell 2.66 percent to 21,601 pesos, while regional airline LAN LAN.SN (LFL.N) dipped 0.85 percent to end at 8,705 pesos.

Chilean President-elect Sebastian Pinera on Friday approved the sale of his 26.3-percent stake in the airline, held by his holding companies Axxion AXX.SN and Santa Cecilia. Pinera's stake is worth an estimated $1.47 billion at current valuations.

Earlier in the day, the peso CLP=CL closed 1 percent higher at 538.00/538.50 per U.S. dollar, compared with Thursday's close of 543.50/544.00. The currency opened the session 1 percent lower, flirting with 15-week lows, before recovering.

The peso sank in recent sessions amid uncertainty following changes to pension fund hedging norms and on the looming end of a central bank liquidity measure. The currency is now down around 6 percent against the dollar in the year-to-date.

Chile's economic activity index, the IMACEC, rose a bigger-than-expected 3.9 percent in December from a year earlier, the central bank said on Friday, signaling an end to the country's first recession in a decade. [ID:nN05174537]

"We were in line with falling global bourses, copper and above all a highly volatile dollar against the euro and yen," said one local trader. "But we completely fell out of step with external factors due to the Imacec data, which hit the peso favorably."