(Adds retail sales, statistical agency comment, background)
SANTIAGO, July 30 (Reuters) - Manufacturing output in Chile defied market expectations for a rise in June, slipping on continued weakness in the key mining and construction sectors, with the slowdown in the top copper exporter showing no signs of easing.
Manufacturing production fell 0.7 percent in June compared with a year earlier, government data showed on Wednesday, compared to a Reuters poll forecast for a 1.4 percent rise.
"The decrease reflects, as in prior periods, less dynamism in industrial activity linked mainly to the construction and mining sectors," said the INE statistics institute, adding that the slide had also happened despite an extra working day compared to 2013.
For the first half of 2014, manufacturing was down an overall 1.3 percent compared with the same period last year. May's figure compared with a year earlier was downwardly revised from an initial estimate of 1.2 percent growth to a softer 0.4 percent on Wednesday.
Previously bubbly retail sales are also losing their fizz, up 2.3 percent in June, which the INE said was the second lowest reading since 2009.
A depreciation of the peso currency - down around 7.7 percent in the year to date - has made imported goods more expensive and driven up inflation in one of the region's most open and developed economies. Consumer confidence turned negative for the first time in two years in June and the labor market is losing dynamism.
The central bank has responded by cutting interest rates, and the effects of that should be felt in the second half of 2014, with growth starting to pick up in the final quarter, central bank head Rodrigo Vergara told Reuters last week.
But the fall in June output "will cloud the vision for the sector for the rest of the year, and will very probably mean a negative reading again in July," said economists at BCI bank in a note.
It also increases the likelihood of a rate cut when the central bank next meets on Aug. 14. The bank has reduced the benchmark rate 125 basis points since last October. (Reporting by Santiago bureau, Writing by Rosalba O'Brien; Editing by James Dalgleish and W Simon)