UPDATE 1-Israel cbank surprises with 50 bps hike to 3 pct

JERUSALEM, March 28 (Reuters) - The Bank of Israel raised its benchmark lending rate by a more than expected half-point on Monday as it battles growing inflation pressures stemming from local demand and higher global commodities prices.

The increase to 3.0 percent, higher than expectations of a quarter-point rise seen by many analysts, was the ninth move since August 2009 and comes after annual inflation accelerated to a 4.2 percent rate in February from 3.6 percent in January -- well above an official target of 1 to 3 percent.

The shekel rose to a 29-month high of 3.5250 against the dollar shortly after the rate hike, against around 3.5340 prior to the announcement.

A month ago, the central bank raised its key rate by a quarter-point and most analysts had expected a third straight move of 25 basis points despite debt markets believing the central bank was behind the inflation curve.

'Inflation forecasts -- of the Bank of Israel, forecasters, and those derived from the capital market -- continue to be high,' the central bank said in a statement.

'According to those forecasts, inflation over the previous 12 months is expected to remain above the target range (of 1 to 3 percent) throughout 2011 and to return within the target range at the beginning of 2012,' it said.

The central bank said housing prices continued to be a key issue for policymakers, with real estate prices up more than 16 percent the past year, while no decline in the volume of new mortgages was evident.

At the same time, the economy -- driven by robust consumer spending -- is projected to grow at least 4 percent in 2011 after a 4.6 percent spurt last year.

'Economic indicators published this month show that domestic activity continued to expand, converging towards a situation of full utilisation of the factors of production,' the Bank of Israel said.

It noted that the key rate was expected to reach 4.1 percent in 12 months based on the Tel Aviv Interbank Offer Rate.

(Reporting by Steven Scheer and Tova Cohen; editing by Crispian Balmer) Keywords: ISRAEL RATES/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.