Chile peso advances on growth data, stocks edge up

SANTIAGO, March 31 (Reuters) - Chile's peso rose sharply on Monday after strong industrial output data increased expectations for higher interest rates, while stock indexes traded moderately higher in cautious early afternoon trade.

The peso CHILJ <CLP=CL> spiked 1.7 percent before paring its gain to 1.06 percent to end the session at 436.00/436.30 per dollar compared with its close on Friday at 440.60/440.90.

"As soon as the industrial production figures were released our currency jumped, but lower growth in industrial sales contained the rise," a trader said.

Growth in February industrial output of 5.7 percent exceeded market expectations of 4.1 percent, and analysts said it would give the central bank the space it needs to raise the benchmark interest rate to curb inflation of over 8 percent.

Chile's Central Bank has been reluctant to raise its key rate of 6.25 percent amid slower domestic economic growth and as the United States has slashed its fed funds rate to 2.25 percent to revive flagging growth.

The rate gap, along with record trade surpluses on the back of historic high prices for copper, Chile's leading export, have pushed the peso to its strongest level in over a decade.

On the bourse, the all-market IGPA index .IGPA edged up 0.17 percent to 13,405 points, while the blue-chip IPSA .IPSA traded 0.24 percent higher at 2,897 points.

"The (industrial production) figures were pretty strong," said Agustin Alvarez, an analyst with the BICE brokerage. "People are waiting for inflation data too. There's some uncertainty there, and it's keeping the market cautious."

Analysts said that strong figures for inflation, scheduled for release on Thursday, in combination with Monday's rise in industrial output, would make a central bank rate hike next week more likely.