UPDATE 2-Vietnam cuts retail petrol prices by 5.6 percent

(Adds government statement, details)

HANOI, Aug 27 (Reuters) - Vietnam trimmed retail petrol prices by 5.6 percent on Wednesday, the second cut in two weeks as it takes advantage of retreating crude oil to reverse some of July's increase.

Asia's second largest importer of petrol and diesel on Monday reported annual inflation at 28.3 percent in August, a rise to its highest since at least 1991 partly on the back of the 40 percent hike in petrol prices last month.

"The fuel price adjustment is aimed at minimizing the adverse repercussions of high fuel-related input costs on production and people's lives," the government said in a statement.

U.S. crude CLc1 has slid by a fifth from record highs of above $147 hit in July, giving the government some breathing room to trim subsidised fuel prices that directly contribute 2.58 percent to the consumer price index basket.

The impact of the latest petrol price cut would be reflected in Vietnam's consumer price index in September.

The popular 92-octane grade gasoline now retails at 17,000 dong ($1.03) per litre, down from 18,000 dong, but still nearly 25 percent higher than at the beginning of 2008.

The government freed the price of 95-octane petrol, and sole retailer Petrolimex said it had cut the price to 17,500 dong per litre from 18,500 dong, while kerosene was eased by 1,000 dong to 18,000 dong per litre.

The government will maintain the price of diesel, mainly used by industrial users, and provide subsidies to diesel importers to cover losses.