Chilean stock indexes fell for a third day on Friday as investors bet on higher interest rates and took profits on recent gains, while the peso rose to a seven-week high against the dollar. The value-weighted IGPA index slipped 0.61 percent to 14,961.69 points, while the trade-weighted blue chip IPSA index fell 0.87 percent to 3,425.28.
On Tuesday both indexes closed at all-time highs, pushing the IGPA's advance for the year to nearly 23 percent. Stocks began retreating on Wednesday after the June consumer price index rose a stronger-than-expected 0.9 percent, reinforcing views the central bank will soon raise its benchmark interest rate. May economic growth also came in at a weaker-than-expected 4.8 percent.
"I think what you're seeing is a little bit of a correction here in the Chilean market. It's had a nice run year to date," said Brian Chase, an analyst with UBS Pactual in Santiago. "And you've gotten some weak economic indicators," he added. "High inflation will likely lead to higher interest rates in the next central bank meeting."
Blue chip losses on Friday were led by large electric utilities. Endesa Spain utilities Endesa Chile and Enersis, the IPSA's most heavily weighted stocks, fell 2.26 percent and 1.03 percent respectively. No 2 generator Colbun retreated 2.18 percent to 112 pesos a share.
Chilean energy generators have been affected by Argentine cuts in natural gas shipments, which have forced the use of more costly diesel fuel. There are also concerns about the poor start to Chile's rainy season, which could mean higher costs for hydroelectric power generators as well.
Other declining shares included dominant air carrier LAN down 1.13 percent to 8,601 pesos a share and leading shipping company Vapores, with a slide of 3.56 percent to 1,070.10 pesos a share. Next Thursday the central bank will hold its monthly monetary policy meeting and market expectations are for an increase in the benchmark rate to 5.25 percent from 5 percent.
"I think things will be soft until that point," Chase said. "If things go as expected, which is a 25-basis-point rate hike, you could see investors start to jump back in." Chilean inflation-adjusted five-year central bank bond yields fell to 2.85 percent on Friday, from the prior session's close at 2.89 percent.
The Chilean peso advanced 0.38 percent to close at a seven-week high of 521.00/521.50 per dollar compared with Thursday's close at 523.00/523.50. "The global outlook is totally positive, with other emerging market currencies strengthening, global stock markets rising in general and stronger expectations in past days for a rise in local interest rates," a trader said.