June 5 (Bloomberg) -- Chilean college students joined a nationwide high school strike to demand increased funding for education, expanding the challenge President Michelle Bachelet faces in damping the unrest.

The walkout entered its third week today as hundreds of students marched on the main thoroughfare in downtown Santiago in unauthorized demonstrations, Television Nacional reported. Students last week rejected as inadequate a government offer meeting some of their demands.

The protests spread across the country last week from Santiago, with 800,000 people joining to urge the government to use some of its windfall from sales of copper, the country's top export, to help poor students. Bachelet, who took office in March, is maintaining Chile's policy of saving most of the surplus revenue from copper, which touched a record earlier this year, for the future when prices drop.

``We have a new administration here, so we're looking closely at how the government comes out of this,'' Sebastian Briozzo, a Standard & Poor's analyst said in a telephone interview from Buenos Aires. ``The government has raised its ambitions on the social agenda, so the ability to manage expectations will be an issue.''

Bachelet, a Socialist and pediatrician who is Chile's first woman president, promised in her campaign to distribute more widely the benefits of the country's economic growth. She pledged to complete 36 measures to improve the lives of Chileans in her first 100 days in office, which range from expanding coverage for low-income pensioners to providing subsidies for pre-school care for poor families.

Free Lunches, Exams

Chile has an A rating by Standard & Poor's on its long term foreign currency debt, the highest in Latin America.

The yield on the Chilean government's benchmark 5.5 percent bond due in January 2013 fell 6.8 basis points since May 30 to 5.7 percent, according to HSBC Bank Chile.

The government's offer to increase spending failed to placate students who demanded a bigger effort to reduce inequality in the education system. Demonstrators today called on the government to set a timeline for sending a law to congress to reform education.

``The most important thing now to end this strike is for the government to convene this commission and define the terms,'' said Claudio Castro, president of the Universidad Catolica's student association.

Bachelet's proposals to the striking high school students include 500,000 more free lunches, no-fee college entrance examinations for 150,000 poor youth, and bus passes for needy students at no cost. She also pledged to improve infrastructure at 520 schools and send congress an education reform bill, according to the government's Web site.

Riot Police

The government's package would increase education spending this year by 1.3 percent, or 31 billion pesos ($58.2 million), and 103 billion pesos through next year.

Copper for delivery in July rose 1.45 cents, or 0.4 percent, to $3.6010 a pound on the Comex division of the New York Mercantile Exchange at 5:34 p.m. New York time. Prices for the metal are up 76.4 percent since the beginning of the year.

Students congregated around the downtown campus of the Universidad de Chile, where rock 'n' roll music blasted from the windows, and the main building was plastered with banners urging Bachelet to meet the teenagers' demands. Chile's special police stayed close by, waiting with water cannon trucks and tear gas to keep students from blocking traffic.

`Enough'

Some pelted the trucks with rocks and paint, in periodic skirmishes.

``This will go on indefinitely,'' said Maximiliano Martino, 17, as he sucked on a lemon near the university campus, a trick he's learned over the past few days to combat the effects of tear gas. ``With all the copper income they have, they have enough.''

Police arrested 85 people today in Santiago alone as of 5:00 p.m. New York time. On May 30, the day with the most street demonstrations last week, police took 811 people into custody nationwide.

To contact the reporter on this story: Matthew Walter in Santiago at mwalter4@bloomberg.net

Last Updated: June 5, 2006 18:36 EDT