Chile peso up on rate hike bets, stocks dip

By Froilan Romero and Manuel Farias

SANTIAGO, Aug 28 (Reuters) - Chile's peso firmed to a three-week high against the dollar on Thursday as traders bet on an interest rate hike despite weaker-than-expected industrial output data, while stocks were a shade lower, dealers said.

The peso CHILJ CLP=CL, which has depreciated strongly since the central bank introduced an $8 billion intervention program in April, firmed 0.77 percent against the dollar to close at 515.50/516.00, versus Wednesday's close at 519.50/520.00 per dollar.

"Although the industrial output data came out weak, the central bank made it clear yesterday that it would continue with its restrictive policy putting more emphasis on controlling inflation than on economic growth," said one dealer, asking not to be named in line with policy.

Chilean industrial output rose a lower-than-expected 3.0 percent in July compared with a year ago, while copper output tumbled and the country's three-month jobless rate climbed from a year ago, government data showed on Thursday.

Analysts said the July data would leave the central bank with room to raise rates to fight the strongest inflation in 14 years.

Central Bank President Jose De Gregorio forecast on Wednesday the bank will need to keep raising rates, which are already at decade-highs, in the most likely scenario.

The July data follows a second quarter in which the economy had expanded a bigger-than-expected 4.3 percent, thanks to surging investment and domestic demand.

The peso has now depreciated 3.43 percent so far this year against the dollar, after appreciating 6.44 percent in 2007.

Stocks were little changed, as buying in bank shares countered the impact of the industrial output data.

Chile's all-market IGPA stock index .IGPA was 0.10 percent weaker in afternoon trade at 13,771 points, while the blue-chip IPSA .IPSA was down 0.14 percent at 2,894 points.

"Unemployment was in line, but industrial production was 3.0 percent when the low end of expectations was 4.3 percent. That is a bad sign," said Roberto Guzman of brokerage FIT Research.

Shares in leading fertilizer exporter Soquimich SQM_pb.SN were down 1.95 percent at 20,100 per share, retracing sharp gains made on Wednesday.

Stock in Chile steel and iron ore producer Cap CAP.SN was up 1.87 percent at 18,950 pesos, after rising 2.35 percent on Wednesday. The company is in a $550 million expansion of its sheet steel operation.

Retailer D&S DIS.SN, owner of Chile's biggest supermarket chain, was up 0.11 percent at 198.75 pesos, while shares in Chile-based regional energy group Enersis ENE.SN (ENI.N) fell 0.05 percent to 179 pesos. (Editing by Leslie Adler)