UPDATE 2-Mexico 1st-half Oct consumer prices rise 0.32 pct

(Recasts; adds details, background)

MEXICO CITY, Oct 24 (Reuters) - Mexican consumer prices rose slightly less than expected in early October, but a jump in costs for milk and cigarettes sent closely-watched core inflation higher, the central bank on Wednesday.

The mixed data comes as investors seek to gauge whether the bank could raise interest rates later in the week, and analysts said the figures could be read either way.

Prices have been rising for much of the last year at a faster annual clip than the 4 percent rate that central bank says it can tolerate.

During the first half of October, the consumer price index rose 0.32 percent, a tick lower than the 0.33 percent forecast by 23 analysts in a Reuters poll.

That brought annualized inflation down to 3.64 percent through the first half of the month, from 3.79 percent a month ago.

"This gives the central bank some room to maneuver. We think they will hold rates steady," said Octavio Gutierrez, an economist at BBVA Bancomer in Mexico City.

At the same time, core inflation, which strips out some volatile food and energy prices, was 0.21 percent during the first half of the month, higher than the 0.14 percent forecast by analysts.

Many economists consider core prices an indicator of future inflation trends, and some said the reading for early October could push the central bank to hike interest rates at its next policy review on Friday.

"This reinforces our expectation that the central bank will tighten its policy this month," said Rafael Camarena, an economist at Santander in Mexico City.

The price of the benchmark 10-year government peso bond MX10YT=RR fell on the reading, down 0.121 of a point to bid 101.002. The bond's yield, which moves inversely to its price, rose 2 basis points to 7.83 percent.