CORRECTED-UPDATE 2-Chile economic activity grows at slowest in nearly 2-1/2 years

Thu Dec 5, 2013 10:13am EST

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(Corrects paragraph 10 to say interest rate was cut in October and November, not September and October)

SANTIAGO Dec 5 (Reuters) - Chile's economic activity grew at its slowest pace in nearly 2-1/2 years in October, weighed down by a drop in manufacturing output and the weak performance of the wholesale commerce, corporate service and transport sectors, the central bank said on Thursday.

Economic activity, as measured by the IMACEC index , rose 2.8 percent in October from the same month in 2012, the weakest growth in a month since July 2011.

That is well short of market expectations for a 4.0 percent increase.

The monthly IMACEC index encompasses about 90 percent of the economy tallied in gross domestic product figures, released quarterly.

In comparison with September, economic activity decreased a seasonally adjusted 0.1 pct in October.

"The Chilean economy decelerated mainly due to less dynamism in investment," Finance Minister Felipe Larrain said on Twitter.

Chile's relatively small, open economy has been gradually slowing as mild global growth drags on its exports and domestic demand wanes, in particular investment.

The downbeat data highlights the challenge awaiting the country's next president, likely center-left Michelle Bachelet, the front runner in the Dec. 15 runoff vote. She will have to juggle pledges for increased fiscal spending on education and healthcare with a slowing economy.

The central bank cut its estimates for 2014 economic growth on Tuesday, pointing to slowing consumption and lower global commodities prices, but said it does not forecast significant changes in the benchmark interest rate.

Following two consecutive 25-basis-point cuts to the key interest rate in October and November, it now stands at 4.5 percent. The bank's governing board members will hold their next monetary policy meeting on Dec. 12.

The bank has said it doesn't anticipate "significant changes to the key interest rate will be necessary" but has underscored that were they to become necessary, monetary policy has room and is available to make further adjustments.

"We forecast the central bank will pause its process of cutting interest rates as it waits for more information regarding how fast domestic demand and investment are decelerating," said Matias Madrid, chief economist at Banco Penta in Santiago.

After growing 5.6 percent last year, the world's top copper producer is seen wrapping up 2013 with 4.2 percent growth and then expanding between 3.75 percent and 4.75 percent next year. (Reporting by Santiago bureau; Writing by Anthony Esposito; Editing by Theodore d'Afflisio)

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