UPDATE 3-Chile economy shrinks in May for 7th month

* Chile May economic activity falls 4.4 pct, as expected

* Economy shrinks for seventh month running

* New interest rate cut seen (Updates with finance minister comment)

SANTIAGO, July 6 (Reuters) - Chile's slumping economy shrank 4.4 percent in May, a seventh consecutive monthly fall that was in line with market expectations, central bank data showed on Monday, as a global crisis hammered mining and industrial output as well as forestry and fishing.

The data comes amid widespread expectations Chile's economy will post its first annual contraction in a decade this year as the crisis hits demand at home and abroad, and reinforced expectations for a new central bank interest rate cut.

"The recent weak activity prints and weak labor market report amid a very benign inflation outlook support the case for additional monetary easing/stimulus," Alberto Ramos, senior economist at Goldman Sachs in New York, said in a note to investors.

The fall in the IMACEC economic activity index was in line with the median forecast of 10 analysts and economists polled by Reuters. The IMACEC fell 4.6 percent in April compared with a year earlier, which was its steepest year-on-year decline in a decade.

On a seasonally adjusted basis, the IMACEC fell 0.1 percent in May from April.

"One fewer work day than in May 2008 and falls in industry and trade as well as in activity linked to the fishing and forestry sectors impacted the result," the central bank said in a statement.

Finance Minister Andres Velasco said seasonally adjusted data showed the economy was stabilizing, and said he expected economic activity to improve with the global economy.

"If we look at immediately preceding months, economic activity is at practically identical levels, which shows the fall seen at the end of last year and beginning of this year has stopped for several months," Velasco told reporters.

Foreign exchange dealers said the peso CLP=, which closed weaker on Monday amid broad-based dollar strength, falling stock markets and sharply lower copper prices, was unfazed by the IMACEC reading and that the fall in activity had been factored into the market.

The IMACEC, a monthly gauge, measures more than 90 percent of the components comprising Chile's gross domestic product. GDP figures are issued quarterly.

Chile's industrial output plunged 10.5 percent in May from the same month a year earlier, government data showed last week, while the unemployment rate hit a five-year high of 10.2 percent in the March-May three-month period.

The consumer price index likely rose 0.1 percent in June, pushed up by an increase in fuel prices after falling 0.3 percent in May, according to the median estimate of a Reuters poll last week.

Inflation data is due out on Tuesday, and analysts expect the central bank to again cut its target overnight lending rate, which it has already slashed to a record low of 0.75 percent.