UPDATE 1-Tunisian dinar hits record low as small protests break out over rising prices

rising prices@ (Adds details, background)

TUNIS, Jan 8 (Reuters) - Tunisia's currency hit a record low against the euro on Monday, driving up the cost of imports as small street protests broke out against rising inflation and poverty.

Tunisia's economy has been in crisis since a 2011 uprising unseated the old regime and two major militant attacks in 2015 hit the tourism sector, which comprises 8 percent of GDP and is a key source of foreign revenues.

The Tunisian dinar already lost 20.6 percent of its value against the euro in 2017 and a further weakening is likely to push up prices of imported food again, adding to growing public anger.

In the capital Tunis security forces late on Sunday dispersed small protests against rising prices and taxes which took effect on Jan. 1.

On Monday, about 300 people took to the streets in the central Tunisian town of Sidi Bouzid, cradle of the country's Arab Spring revolution, carrying banners aloft with slogans denouncing high prices and lack of development.

The opposition is calling for more demonstrations in the coming days.

A lack of tourists and new foreign investors scared of turmoil pushed the trade deficit up by 23.5 percent year-on-year in the first 11 months of 2017 to a record high $5.8 billion, official data showed at the end of December.

Concerns about the rising deficit have hurt the dinar, sending it to 3.011 versus the euro on Monday, breaking the psychologically important three dinar mark for the first time ever, traders said.

The currency is likely to weaken further, said local financial risk expert Mourad Hattab.

"The sharp decline of the dinar threatens to deepen the trade deficit and make debt service payments tighter, which will increase Tunisia's financial difficulties," he said.

Hattab said the dinar may fall to 3.3 versus the euro in the coming months due to high demand for foreign currency and little expectation of intervention from the authorities.

Last year, former Finance Minister Lamia Zribi said that the central bank would reduce its interventions so that the dinar steadily declines in value, but it would prevent a dramatic slide.

The central bank has denied any plans to liberalize the currency but Hattab said Monday's decline showed there was an "undeclared float" of the dinar.

A weaker currency could further drive up the cost of imported food after the annual inflation rate rose to 6.4 percent in December, it's highest rate since July 2014, from 6.3 percent in November, data showed on Monday.

Tunisia is under pressure from the International Monetary Fund to speed up policy changes and help its economy recover from militant attacks.

The country has been praised as the only democratic success among the nations where "Arab Spring" revolts took place in 2011. But successive governments have failed to make the changes needed to trim deficits and create growth.

The 2018 budget raises taxes on cars, alcohol, phone calls, the internet, hotel accommodation and other items. It also raises customs taxes on some products imported from abroad, such as cosmetics, and some agricultural products. (Reporting by Tarek Amara; Editing by Ulf Laessing and Susan Fenton)