* Chile cenbank hikes key rate to 1.5% * Mexican cenbank raises GDP forecast * Brazil GDP contracts in June quarter * El Salvador Congress backs fund for bitcoin ahead of adoption By Susan Mathew Sept 1 (Reuters) - Chile's peso rose as much at 1.6% to hit one-month highs on Wednesday after the central bank doubled the key interest rate overnight, while other Latin American currencies also firmed as the dollar languished near four-week lows. As a rapid COVID-19 vaccination program helps the world's top copper producer resume economic activity and inflation ticks upward, Chile's central bank raised the benchmark rate to 1.5% from 0.75%, more than a 25-basis-point hike forecast in a Reuters poll. On Wednesday, the bank revised upwards its prediction for 2021 GDP growth to between 10.5% and 11.5% from a previous estimate of 8.5% to 9.5%. Data showed economic activity rose 18.1% year-on-year. "The hawkish surprise should support CLP in the near term," Citi strategists said in a note, but added they stayed on the sidelines pending a pension withdrawal vote and upcoming elections. The currency lagged its Latin American peers last month, ending 2% lower as copper prices fluctuated amid protests in copper mines and demand uncertainty. State-owned Codelco, the world's largest copper producer, said it has reached an early collective bargaining agreement with the five unions representing workers at its key El Teniente mine. Mexico's peso hit a two-week peak, up 0.6% after the central bank raised its 2021 economic growth forecast to 6.2% from 6% previously. Inflation is seen at 5.7% in the final quarter, up from a prior prediction of 4.8%. The bank hiked interest rates last month to stave off inflation. It warned that price pressures could be stronger than expected in the months ahead. After some initial uncertainty, the monetary authority said on Tuesday that the International Monetary Fund's special drawing rights may be used by the federal government to meet its foreign currency obligations. Colombia's peso hit a two-month high, extending gains to a fourth straight session. Brazil's real was sluggish after data showed GDP contracted by 0.1% in the June quarter as the new wave of the coronavirus pandemic hit demand. The central bank warned markets to revise 2021 GDP expectations lower after the data. But the central bank chief said he sees higher inflows strengthening the currency. Falling commodity prices saw stocks in resource-rich Latin America fall, with Chile's main IPSA index retreating from a 3-1/2 month high, while Brazil's Bovespa extended losses for a third straight session. In El Salvador, the Congress on Tuesday approved a law to create a $150 million fund to facilitate conversions from bitcoin to U.S. dollars ahead of the Central American country's planned adoption of the cryptocurrency as legal tender next week. Key Latin American stock indexes and currencies at 1346 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1310.70 0.16 MSCI LatAm 2500.94 -0.55 Brazil Bovespa 118345.91 -0.37 Mexico IPC - - Chile IPSA 4449.37 -0.94 Argentina MerVal - - Colombia COLCAP 1317.87 -0.16 Currencies Latest Daily % change Brazil real 5.1541 0.34 Mexico peso 19.9556 0.54 Chile peso 766.7 0.74 Colombia peso 3752.58 0.38 Peru sol 4.0785 -0.05 Argentina peso 97.7800 -0.03 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Emelia Sithole-Matarise)