UPDATE 1-Chile to allow exporters to pay tax in dollars

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SANTIAGO, Oct 16 (Reuters) - The Chilean government on Tuesday said it would allow Chilean exporters to pay taxes in foreign currency to help them deal with a sharp rise in the peso CHILJ <CLP=CL> against the U.S. dollar in recent weeks.

Finance Minister Andres Velasco told a news conference the government would also begin accepting tax payments online.

In accepting taxes online and in U.S. dollars, the government effectively takes dollars out of the market, strengthening the dollar against the peso.

The measure should also help exporters as they will not have to pay commission to convert their dollar earnings into pesos in order to pay tax in Chile.

The Finance Ministry said in a statement the measures would help some 8,300 exporters who pay either annual or monthly taxes in Chile of around $8 billion a year.

The peso has been gaining against the dollar due primarily to a widening gap between Chilean and U.S. interest rates and increased trade surpluses caused by high prices for Chile's chief export, copper.

Last week it broke through the psychologically important 500-peso mark and traded as strong as about 491 pesos to the dollar, its firmest level since June 1999.

On Tuesday it weakened to to 500.20/500.70 pesos to the dollar after the Finance Ministry announcement..

Chilean exporters, particularly of wine, salmon and agricultural produce, have complained that the peso's strength is hitting their business.