UPDATE 2-Rents fuel UAE inflation to 20-year peak in 2007

(Adds details, background, analyst)

By John Irish

DUBAI, June 17 (Reuters) - United Arab Emirates inflation jumped to 11.1 percent in 2007, the highest for at least 20 years, steered by soaring rents as the economy, its currency pegged to the dollar, contends with high world commodity prices.

The UAE, the last of the six Gulf Arab oil producers to release inflation data for 2007, said it planned to modify its consumer price index to reflect price trends more accurately and release data monthly beginning next year.

Inflation has been soaring across the Gulf Arab region, where most states peg their currencies to the ailing dollar, driving up import costs and forcing them to track seven U.S. interest rate cuts since last September.

But rising rents in the UAE, the world's fifth-largest oil exporter and the second largest Arab economy, led the rise in 2007 inflation to 11.1 percent from 9.3 percent a year earlier, the Ministry of Economy said in a statement.

"The figure is a significant pick up on the 2006 level and is marginally higher than we had estimated," said Simon Williams, regional economist at HSBC.

"I expect the 2008 figure to be higher still, driven in part by rising food costs and dollar-driven dirham weakness, but primarily by further rapid growth in domestic demand," he said.

The real estate sector is booming in the UAE, particularly in the emirate of Dubai where foreigners have been able to invest in property since 2002 and low interest rates make holding properties more attractive.