Chile peso gives back sharp gains, stocks edge higher

SANTIAGO, Aug 5 (Reuters) - Chile's peso edged lower in volatile trade on Tuesday, as lower oil prices boosted the dollar and offset the outlook for higher interest rates locally. Stocks shadowed gains in global markets.

After appreciating sharply in opening trade, the peso CHILJ CLP=CL slipped 0.10 percent to end at 511.50/512.00 per dollar from Monday's close at 511.00/511.50.

"The peso opened with strong rises because inflation and economic growth data generated expectations for new rate hikes, which would widen the gap with U.S. rates," one trader said.

The peso wilted after local private pension funds snapped up cheaper dollars and the greenback strengthened in global markets as oil prices fell to a new three-month low.

July inflation of 1.1 percent and June economic growth of 5 percent outstripped market forecasts and reinforced views that the central bank will raise its benchmark interest rate by as much as 50 basis points next week to 7.75 percent.

Meawnwhile, in the United States on Tuesday, the Federal Reserve left key interest rates unchanged after its policy-setting meeting, as expected.

The Chilean central bank continued with its daily purchases of $50 million as part of an $8 billion currency intervention program begun in April after the dollar fell to around 430 per dollar. The dollar peaked briefly above 530 pesos at the end of June.

On the Santiago Stock Exchange, the all-market IGPA stock index .IGPA edged up 0.47 percent to 14,218 points in afternoon trade, while the blue-chip IPSA .IPSA gained 0.69 percent to 2,983 points.

"Economic growth was very good and inflation was very bad. The only clear signal is that interest rates are going to rise," said Roberto Guzman, an analyst with the FIT Research brokerage.

"I think right now the market is focused on earnings reports, which we have until mid-August, and with foreign markets, which are up sharply."

Blue-chip advances outnumbered declines by 3 to 1 in afternoon trade.

Gains were led by dominant air carrier LAN LAN.SN (LFL.N) as its shares climbed 4.05 percent. Last week LAN reported a second-quarter profit rise of 10.7 percent on rising revenue and effective fuel price hedges.

Retail sector advances were led by domestic department store chain La Polar LAP.SN, up 3.78 percent, and by No. 1 supermarket chain D&S DIS.SN, with a gain of 2.16 percent.

Other advances included wood panel manufacturer Masisa MSS.SN, up 2.7 percent to 88.50 pesos a share. (Reporting by Froilan Romero and Manuel Farias, Writing by Lisa Yulkowski, Editing by Chizu Nomiyama)