EMERGING MARKETS-Brazil's real up on rate hike; pesos dip

* Brazil’s real gains 0.2 pct after interest rate hike

* Chilean peso dips 0.3 pct as copper price falls

SAO PAULO, Jan 20 (Reuters) - Brazil’s real outperformed the region’s currencies on Thursday after the country raised interest rates for the first time since July.

The central bank increased the benchmark Selic rate BRCBMP=ECI to 11.25 percent from 10.75 percent late on Wednesday, making it clear that more rate hikes are to come. [ID:nN19215154]

Although economists say higher borrowing costs are necessary to curb a worrying surge in inflation, the move is likely to attract even more investors chasing higher yields and push the local currency to fresh highs.

The Brazilian real BRBY was bid 0.24 percent stronger at 1.667 reais per U.S. dollar on the local spot market in early trading, while the rest of Latin America's currencies weakened on a drop in global commodity prices.

“The real today is going to be affected by the Copom (the bank’s monetary policy committee),” said Carlos Gandolfo, a partner at Sao Paulo’s Pioneer brokerage. “People think interest rates could go up even more.”

Brazil’s 50-basis point increase had been expected by both economists and the market, but some traders had been preparing for a possible 75-basis point hike in the days leading up to the decision.

As a result, yields on interest rate futures contracts broadly fell early on Thursday as traders pared back those bets.

The yield on the contract due January 2012 DIJF2, among the most heavily-traded contracts of the early session, fell to 12.39 percent from 12.42 percent.


The Chilean peso CLP= weakened 0.3 percent to 493.5 per dollar as the price of copper, the country's main export, fell sharply.

Data showing strong economic growth in China raised fears that it may take further steps to slow its booming economy, which could reduce its demand for raw materials. [ID:nTOE70J02S]

The Mexican currency MXN= weakened 0.2 percent to 12.1105 per dollar in dawn trading in Mexico City. (Editing by Padraic Cassidy)