By Graciela Ibanez

Of Dow Jones NEWSWIRES

SANTIAGO -(Dow Jones)- Chile's IPSA select stock index closed lower Friday tracking lower U.S. stocks on J.P. Morgan (JPM) $2 billion Trading losses and Spain's banking problems.

The IPSA ended 0.2% lower at 4476.30, while market volume declined to 60.66 billion Chilean pesos ($124.6 million) from CLP64.54 billion Thursday.

As several of the heaviest-weighted shares on the IPSA are also listed in the U.S., the Chilean select index often tracks the Dow Jones Industrial Average.

In the U.S., J.P. Morgan accumulated trading losses hit stocks in early session but a better-than-expected reading on consumer sentiment helped cut some of the U.S. shares' losses.

J.P. Morgan news was a new ingredient for an already negative mood on the euro-zone's economic problems.

"Investor sentiment in Chile has been negative this week on Spain's banking problems," said Pablo Alvarez, an analyst at Banco Penta.

As the euro-zone is one of Chile's main trading partners, the IPSA often looks at European countries' economic outlook for direction.

In the Santiago Stock Exchange, Chilean flagship carrier LAN Airlines (LFL, LAN.SN) closed 0.1% lower at CLP13,238 ahead of the release of its last first-quarter results as a stand-alone company.

LAN will conclude the merger it announced in August 2010 with Brazilian airline TAM (TAM, TAMM4.BR) on June 12 as it launched an exchange offer for TAM shares Thursday.

The merged company, to be named Latam Airlines Group SA, will be the largest airline in Latin America and one of the 10 biggest in the world in terms of revenue.

Analysts polled by Dow Jones expect LAN's first-quarter net profit to fall an average 26% on-year to $71.8 million on higher fuel prices.

Market analysts and traders are also waiting for the major local retail companies to release first-quarter results.

Retail holding company Cencosud (CENCOSUD.SN) ended 0.8% higher at CLP2,959.60, while department store Falabella (FALABELLA.SN) closed 0.8% lower at CLP4,627.

In other local markets, the Chilean peso closed weaker against the dollar on J.P. Morgan's massive trading losses and China's disappointing industrial production output.

The peso ended at CLP486.90 to the dollar versus Thursday's close of CLP486.20. During the session, the peso fell for the second time this week through the CLP490 psychological barrier and traded between CLP486.20 and CLP490.20.

In the fixed-income market, yields on inflation-indexed Chilean central bank bonds, or BCUs, ended higher in what traders described as a quiet session ahead of the weekend.

The yield on five-year BCU bonds closed at 2.44%, up from 2.43% on Thursday, while the yield on 10-year BCUs closed at 2.53%, from 2.50% the previous session.

(Peso and bond quotes provided by Valor Futuro newswire.)

-By Graciela Ibanez, Dow Jones Newswires; 56-2-715-8929; graciela.ibanez@dowjones.com