LOS ANGELES (MarketWatch) — Chilean stocks fell Friday, with the central bank’s decision to hold steady the country’s key interest rate highlighting concerns about lackluster growth prospects worldwide.

Chile’s IPSA (IPSA) fell 0.5% to 4,129.71, and logged a loss of 2.9% for the holiday-shortened week.

Brazilian and Argentine stocks also fell Friday, with the Bovespa (BVSP) down 1.3% at 52,447.63 and the Merval (MERV) lower by 1.6% to 2,825.38.

Mexico’s IPC (IPC) gave up earlier gains and fell 0.3% to 33,136.89. From the economic front, Mexico’s gross domestic product in the second quarter expanded 3.3%. Analysts polled by Dow Jones Newswires had expected growth of 3.6%. The Mexican economy grew 4.6% in the first quarter.

For the week, the Merval stumbled 4.8% and the Bovespa fell 1.9%. The IPC gave up 0.7%.

Regional and global equities continue to be rocked by worries about difficult debt problems in Europe, slowing corporate spending and economic activity. Morgan Stanley late Wednesday cut its outlook for global growth, and said the U.S. and Europe are “hovering dangerously close to a recession.”

Late Thursday, Chile’s monetary policy makers left the benchmark interest rate unchanged at 5.25%, where it has stood since the June meeting. The central bank noted that internationally, activity indicators “confirm a slower pace of growth in the United States and Europe,” and consensus forecasts for the developed economies have been pulled lower.

In Santiago on Friday, banking and commodity issues slumped. Forestry products provider Empresas CMPC (CMPC) shed 0.5%. Banco Credito e Inversiones (BCI) fell 3.6% and Banco Santander Chile SAN, +0.54% was pushed 1.2%.

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Shares of Lan Airlines LFL, +8.59% , however, rose 1.5% a day after the Justice Ministry in Brazil approved the proposed merger between Lan and Brazil’s Tam SA TAM, . The companies are still waiting for clearance by Brazil’s antitrust regulator.

Chile’s currency USDCLP, rose Friday, trading at 468.14 pesos per U.S. dollar, compared with 469.93 on Thursday, aided by advancing copper prices. Chile is the world’s largest copper producer. September copper HG1U rose 0.4% to $3.98 a pound.

The decision by Banco Central de Chile to hold the key rate at 5.25% was in line with market expectations, but the bank “flared a dovish signal, removing the phrase where it stated in July that in the most likely scenario, further hikes would be necessary,” wrote Barclays Capital Research on Friday.

Chilean inflation expectations “show a significant decline,” and are close to the bank’s target of 3%, the central bank said in a statement. Domestic figures on output, demand and the labor market are showing signs of moderation at the margin, it added.

Analysts at LarrainVial told clients on Friday it’s likely the key rate has peaked at 5.25%, “in response to both higher global risk and the resulting slowdown in developed economies and the cooling of domestic demand and the economy in Chile, which may come as a negative surprise over the next months.”

The central bank “may even lower the monetary policy rate in 2012,” wrote Leonardo Suárez, chief economist, and Cristóbal Oyarzún, fixed income analyst, at LarrainVial.

On Thursday, the central bank said Chile’s economy grew 6.8% in the second quarter. The figure was above market expectations, but Chilean officials have said to expect slowing in the second half of the year.