UPDATE 3-Chile Feb economy surge spurs hefty rate hike view

* Upbeat data seen spurring hefty rate hike next week

* February marks highest year-on-year rate in six months

* Finance minister estimates Q1 growth of above 8 percent

* Peso, stocks rally on stronger-than-expected result
(Updates markets)

By Brad Haynes

SANTIAGO, April 5 (Reuters) – Chile’s economy grew a
bigger-than-expected 7.2 percent in February from the same
month last year, official data showed on Tuesday, spurring
expectations for a hefty hike in the benchmark interest rate
next week.

February’s year-on-year rise in the IMACEC economic
activity gauge (CLACTI=ECI: Quote, Profile, Research) was the biggest in six months in
the world’s top copper producer, accelerating from January’s
6.8 percent increase.

Chile’s central bank holds its next interest rate-setting
meeting on April 12 and Tuesday’s upbeat year-on-year data
release could embolden policymakers as they make fighting
inflation the top priority.

Last month, the central bank raised its benchmark rate by
50 basis points to 4 percent.

“February’s positive economic data points to an interest
rate hike of at least 50 basis points in April and this boosts
the peso,” one currency trader in Santiago said.

Chile’s peso currency (CLP=CL: Quote, Profile, Research) racked up its fifth straight
gain as expectations consolidated around another aggressive
rate hike, which could lure greater foreign investment.

The growth data helped lift Chilean stocks (.IPSA: Quote, Profile, Research) to a
fresh two-month high, led by the forestry sector, which was
cited in the central bank report to explain recent growth.

Economic activity rose 0.4 percent in February from the
previous month in seasonally adjusted terms, its fourth
consecutive month-on-month expansion, although at a slower rate
than during the previous month.

In January, the IMACEC rose 1.0 percent against December,
the central bank said, revising down an earlier estimate.

Earlier this week, Chile’s central bank held its estimate
for economic growth in 2011 at between 5.5 and 6.5 percent, but
it said the forecast had an upward bias.

Finance Minister Felipe Larrain said the rate of expansion
would be “comfortably higher than” 8 percent in the first
quarter and into double digits in March.

“It’s clearer and clearer that we will have growth of more
than 6 percent in 2011,” he said in a speech after the release
of February’s data.

High copper prices are fueling the economy’s robust growth,
which has also received a boost from reconstruction efforts
following a huge earthquake on Feb. 27, 2010.

The central bank said February’s activity had been spurred
by the retail, farming, forestry and transportation sectors.

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Goldman Sachs economist Alberto Ramos said the negative
impact of the quake on last February’s reading could have
bolstered this February’s reading.

“However, the largest impact of the earthquake was felt in
March and this will likely lead real activity to expand in
excess of 10 percent year-on-year in March 2011,” Ramos said in
a briefing note.

The IMACEC reading, which measures more than 90 percent of
the components comprising Chile’s gross domestic product,
follows signs that industrial production is slowing.

Chile’s industrial production (CLIP=ECI: Quote, Profile, Research) fell in February
from January and posted its weakest annual growth rate in
months, the government statistical agency INE reported last
Wednesday.

Copper output, the bulk of Chile’s exports, also fell in
February compared with a year earlier, INE said.

“The solid and higher-than-expected February real activity
figures should encourage the central bank to continue to
normalize domestic monetary conditions and to hike the policy
rate by another 50 basis points next week,” Ramos said.

February’s year-on-year result was far above the 5.8
percent median forecast of 14 analysts polled by Reuters.
(Additional reporting by Maria Jose Latorre; Writing by Helen
Popper; Editing by James Dalgleish)
([email protected]; +54 11 4318 0655; Reuters
Messaging: [email protected]))

UPDATE 3-Chile Feb economy surge spurs hefty rate hike view