Chile peso closes at 2-week high, stocks edge up

SANTIAGO, July 8 (Reuters) - Chile's peso firmed to a two-week high on Tuesday as oil backed off record highs and investors bet on higher interest rates, while stocks edged higher in quiet trade.

The peso <CLP=CL> strengthened 0.69 percent to close at 504.30/504.80 per dollar compared with 507.80/508.30 on Monday.

"Markets turned optimistic today because of the drop in crude oil prices," a trader said. "On top of that, the central bank rate hike looks like a sure thing, which will widen the rate gap (with the United States) and make the peso a more attractive investment."

The central bank is widely expected to raise its benchmark interest rate by half a percentage point to 7.25 percent on Thursday to tame inflation, which rose to a 12-month rate of 9.5 percent in June, its highest since 1994.

The bank on Tuesday also continued with its daily dollar purchases of $50 million on the currency exchange as part of an $8 billion intervention program begun in April to curb peso strength after the dollar slumped to 430 pesos in March.

Stocks made minimal gains in afternoon trade, as the all-market IGPA .IGPA edged up 0.2 percent to 13,654 while the blue-chip IPSA index .IPSA gained 0.23 percent to 2,803.

"The local market is waiting for the central bank's rate decision," said Roberto Guzman, investment manager with brokerage FIT Research. "Everyone is expecting an increase, the only question is how much."

Guzman said there were also concerns about U.S. markets after weak home sales data.

"It's showing that the U.S. economy still has problems."