By Aaron Nelsen

SANTIAGO, Nov 10 (Reuters) - Chile's peso closed at a fresh 15-month high on Tuesday, lifted by dollar flows into the local market and the unwinding of carry trades, while shares fell on losses in retail stocks, traders said.

The peso CLP=CL closed 0.99 percent firmer at 507.20/507.50 per U.S. dollar, the strongest close since August 2008, compared to Monday's close of 512.20/512.70.

Carry trades involve investors borrowing in countries where financing costs are cheap, like Chile, to invest in assets denominated in higher-yielding currencies. In recent weeks investors have unwound positions and U.S. dollars flowed into local markets, boosting the peso.

"We are seeing a pronounced trend, and it all started with the 2 percent tax in Brazil," said Rodrigo Sarria, a trader with Celfin Capital, adding he would not be surprised to see the peso firm to 500 per dollar in the short term or ultimately strengthen even further.

The peso has gained more than 26.38 percent this year after sliding 22.3 percent in 2008 amid the worst of the global financial crisis.

Chile's blue-chip IPSA share index .IPSA fell 0.41 percent to close at 3,389.37 while the all-market IGPA .IGPA closed 0.28 percent lower at 15,922.81.

"It's a quiet day, the market is rather steady. No significant news other than the peso," said Allan Becker, a sales trader with CorpCapital brokerage.

Retail shares led the day's broad losses, with the sector down 2.01 percent. Only banks and utilities bucked the wider market downdraft.