UPDATE 1-Peru's economy grows 6.47 percent in May

* Market expected expansion of 5.4 percent

* May's upbeat data points to stable lending rates

* Construction, domestic demand buoy Andean economy

LIMA, July 15 (Reuters) - Peru's economy beat expectations to grow 6.47 percent in May from a year ago, driven by robust construction activity and strong domestic demand, official data showed on Sunday.

In April, the economy grew by only 4.37 percent year-on-year, a more than two-year low, hurt by shrinking demand for the country's key metals exports.

The May data will likely cement market expectations for the central bank to keep its benchmark lending rate on hold.

"The favorable economic activity figure is explained by dynamic domestic and external demand," government statistics agency INEI said in a statement. ()

May's growth rate, however, still came in below the 7.4 percent expansion the emerging economy posted during the same month a year ago.

Economists surveyed by Reuters had predicted year-on-year growth of 5.4 percent in May, with the 11 local and foreign economists consulted forecasting growth between 4.1 and 6.0 percent.

Construction activity rose a brisk 15.84 percent in May, while commerce climbed 6.47 percent. Mining and energy, a mainstay of the economy, rose 1.28 percent -- less than in prior months.

Manufacturing, which lost ground in the two previous months, recovered with a gain of 2.69 percent.

The gains should help reduce unemployment, which fell 1.0 percentage point to 6.3 percent in the second quarter, year-on-year, according to the benchmark jobs index that takes in the capital, Lima.

The government of President Ollanta Humala estimates 2012 growth will come in at 6 percent, below last year's 6.92 percent rate but potentially still one of the fastest rates in Latin America.

Peru's central bank, which has a 5.8 percent annual growth forecast, held its interest rate at 4.25 percent as expected last week. Some analysts predict it could lower the rate by year's end to boost growth as inflation slows.

The Andean nation registered a trade deficit for the first time in more than three years in April and again in May as the European debt crisis weighs on prices for metals, which account for 60 percent of Peru's exports.

But Central Bank President Julio Velarde said last week he saw no signs that would require monetary stimulus "for now" because domestic demand remains strong.