(Updates with bourse close)

By Alexia Vlahos

SANTIAGO, May 18 (Reuters) - Chile's blue-chip stocks index surged over 3 percent on Monday, closing near an 11-month high on Wall Street's strong gains, while the peso ended weaker, traders said.

The IPSA .IPSA blue-chip share index closed up 3.1 percent at 3,055.21 points, while the all-market IGPA index .IGPA closed 2.66 percent higher at 14,360.73 points. The IPSA is up 28.7 percent since the start of the year.

"Today the Chilean bourse continued rising and got an added boost from U.S. stocks," said Rodrigo Anadaur, an analyst with the FIT Research brokerage in Santiago.

"Commodities and retail are the two sectors that have the most impact on the market," he added.

The Dow Jones industrial average .DJI closed up 2.85 percent as a better-than-expected quarterly profit and upbeat outlook from Lowe's Companies Inc (LOW.N: Quote, Profile, Research), the No. 2 U.S. home improvement retailer, fueled hopes the economic slump was easing.

Another boost came from Morgan Stanley, which upgraded Chile on Monday to equal weight from underweight on its country model portfolio.

Chilean retailer Falabella FAL.SN saw its shares rise 2.32 percent to 2,219.90 pesos a share, while Cencosud CEN.SN, one of Latin America's largest retailers, surged 4.89 percent to 1,489 pesos.