* Strong domestic and external demand boost indicator
* But manufacturing contracts in February vs January
* Copper output rises on grades, smoother operations
By Antonio De la Jara
SANTIAGO, March 28 (Reuters) - Chilean manufacturing production grew 0.9 percent in February from a year ago mainly due to strong domestic and external demand, broadly in line with a Reuters forecast for a 0.8 percent increase, government data showed on Thursday.
But the indicator slowed sharply compared with the 4.8 percent growth clocked in February 2012.
“As with previous months, the food industry led growth, as did, to a lesser extent, production of metals,” the INE statistics agency said.
Manufacturing also clocked a 4.3 percent contraction compared with January, in seasonally- adjusted terms.
One fewer working day in February, compared with the same month a year ago, weighed on the index.
In January, manufacturing output grew a larger-than-expected 4.3 percent from a year earlier, also boosted by the food industry.
Thriving domestic demand, strong investments and a low jobless rate have buttressed Chile’s economy and helped prompt the central bank to keep its key lending rate steady at 5.0 percent since a surprise cut in January 2012.
Robust local demand could prove to be too much of a good thing though.
Central bank board member Enrique Marshall warned last Friday the main local risk to Chile’s economy is that growth in domestic demand outpace the expansion of gross domestic product, which could lead to a widening of the current account deficit.
While buoyant growth and low inflation at home versus persistent economic threats from abroad have kept the central bank’s hands tied on monetary policy, traders polled by the bank see the rate creeping up to 5.25 percent in 12 months and analysts polled by the bank see it at that level within 11 months.
Chile produced 420,207 tonnes of copper in February, a 2.8 percent expansion from a year earlier, on improved ore grades and higher output at some deposits that operated irregularly in 2012, the government also said on Thursday.
But production slid 11.2 percent in February compared with January, the INE agency added, without including an explanation.
Chile’s output of the red metal jumped by 3 percent to 5.455 million tonnes during all of 2012, boosted by better grades, new mines and a low base of comparison.
Molybdenum output rose 23 percent to 2,959 tonnes in February.