* Central bank move follows sharp peso appreciation
* Gradual rise to 80 pct from 60 pct to begin in December
* President said last month he is eyeing capital account (Adds graphic, factbox links, quotes, international context)
By Antonio de la Jara
SANTIAGO, Nov 4 (Reuters) - Chile's central bank said on
Thursday it would gradually raise foreign investment limits for
pension funds to 80 percent from 60 percent as it seeks to
counter the recent sharp appreciation of the peso
The bank said the limits on the pension system, which manages more than $138 billion, would begin rising in December, with three more increases coming in the following nine months. Greater investment abroad would increase demand for dollars, helping to weaken the peso or at least offset capital inflows.
Chile's peso has soared nearly 14 percent since the end of June, prompting intervention warnings from Chilean authorities concerned about the competitiveness of local exporters.
The peso was broadly stable after the announcement, closing up 1.9 percent at 479.90/480.40 per dollar following the Federal Reserve's unveiling of new monetary stimulus after the local market close on Wednesday.
After the Fed announcement, policymakers from the world's economic powerhouses in Latin America and Asia said they would consider fresh capital controls.For more, see: [ID:nTOE6A300V]
Chile's pension fund announcement appeared to be the first concrete foreign exchange measure adopted after the Fed announcement, which involves massive debt purchases to lower long-term interest rates. That makes emerging market investments more attractive.
Santiago-based Banchile economist Fernando Soto said the impact of the new pension policy would not be immediate, as the local market remains attractive for many investors.
"This establishes a cap for the exchange rate to some degree, although not in the short-term, given that authorities are taking measures focused on the currency it means we are already near that cap," Soto said. ------------------------------------------------------ For a TAKE-A-LOOK, see [ID:nN30113748] For a Chile forex graphic, see http://r.reuters.com/raq49p For impact of prior measure, see http://r.reuters.com/puk83q Factbox on steps to counter hot money [ID:nSGE69503F] ------------------------------------------------------->
Chile has held off so far on buying dollars in the local market, like Colombia, or raising taxes on foreign investment in local assets, as Brazil did twice last month.
"We view the measure as not particularly aggressive," said Jimena Zuniga, with Barclays Capital in New York. "Despite the government's concern about ... appreciation pressures, it seems inclined to concentrate all the efforts on market-friendly measures at this stage."
President Sebastian Pinera said last month that he is not planning capital controls, and he would like to stem the peso's appreciation by encouraging more Chilean investment abroad.
Finance Minister Felipe Larrain told reporters after the announcement that he had asked the central bank to revise the pension funds' investment limits.
The central bank has said it constantly weighs direct intervention in the foreign exchange market, but fundamentals do not justify action at the peso's current levels.
The bank cited the peso's strength when it slowed the pace of increases to its benchmark interest rate last month. Higher interest rates have attracted foreign investors in recent months, adding to the peso's appreciation. [ID:nN14173354]
Chile's last market intervention came in 2008, when the peso was trading around 430 per dollar and the central bank began a program of dollar purchases to increase international reserves and weaken the peso.
The bank previously lifted the limits on investment abroad for Chile's privately administered pension funds beginning in October 2008, from 45 percent to 60 percent.
At that point, amid the global financial crisis, fund administrators were slow to take advantage of the new freedom. But within 18 months the pension system's most aggressive funds had expanded their foreign portfolios by more than 12 percentage points.
Now as then, few of the funds in the privately managed pension system are investing in foreign assets to the maximum extent allowable. But the new limits may open possibilities, as the highest-risk funds will soon be able to invest entirely overseas.
"Just the fact of being authorized to invest a greater percentage is a very good signal," Guillermo Arthur, association president for Chile's pension fund administrators, told local media last week after the government said it was looking at raising the limits.
"It allows us to be alert for opportunities to invest abroad that we couldn't even consider if we didn't have that margin." (Writing by Brad Haynes; Editing by Simon Gardner and Dan Grebler)