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On 12 February 1541, Valdivia officially founded the city of Santiago del Nuevo Extremo (Santiago of New Extremadura) in honor of St.James, patron saint of Spain, near the Huelén, renamed by the conqueror as "St. (The name Santiago is the local Galician evolution of Vulgar Latin Sanctu Iacobu, "Saint James".) Following colonial rule, Valdivia entrusted the layout of the new town to master builder Pedro de Gamboa, who would design the city grid layout.

In face of this barbaric act, the natives dispersed in terror.Each solar (quarter block) was given to the settlers, who built houses of mud and straw.Valdivia left months later to the south with his troops, beginning the War of Arauco. The indigenous hosts of Michimalonco used this to their advantage, and attacked the fledgling city.On 11 September 1541, the city was destroyed by the natives, but the 55 Spanish Garrison managed to defend the fort.The resistance was led by Inés de Suárez, a mistress to Valdivia.

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