Chile peso sharply lower, stocks pare gains on oil

SANTIAGO, July 30 (Reuters) - Chile's peso was sharply lower on Wednesday amid U.S. dollar gains and expectations of a U.S. rate hike, dealers said, while stocks pared early gains after oil prices rebounded from 12-week lows.

The peso CHILJ CLP=CL, which has bounced around since the beginning of the year as it was pressured upward by higher benchmark rates and downward by central bank intervention, was 1.72 percent weaker at 505.50/506.00 per dollar by 1307 local (1707 GMT).

An increase in U.S. interest rates would narrow the breach with Chile's benchmark rates.

The blue-chip IPSA .IPSA was 0.96 percent higher at 2,975 points, while the all-market IGPA index .IGPA advanced 0.83 percent to 14,182 points, with both indexes paring much stronger gains made earlier in the morning.

Chilean stocks were led higher by LAN LAN.SN(LFL.N: Quote, Profile, Research), Chile's dominant airline, up 3.9 percent to 5,920 pesos per share a day after it bucked market expectations with a second-quarter net profit rise of 10.7 percent from a year earlier.

Analysts had expected a 7.6 percent drop, betting surging oil prices would offset the carrier's revenue growth and fuel hedge.

Traders said other Chilean stocks were also propelled by favorable expectations for upcoming corporate reports this week and next.

"Some results are already out, like LAN, which are slightly above expectations," said Elizabeth Palma, an analyst with the Tanner brokerage. "So this generates expectations that other results won't be as bad as originally thought."

Stock in Chilean steel and iron ore producer CAP CAP.SN, a big energy consumer, also rose, up 1.89 percent to 20,050 pesos per share.