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Dollar recovery halts gains in Latam currencies

(Updates prices, adds market analysts comment) By Sruthi Shankar July 19 (Reuters) – A U.S. dollar recovery put most Latin American currencies under pressure on Friday while Brazil’s Bovespa stock index led losses in the region’s equity markets. The MSCI index of Latin American currencies edged lower as the dollar swung to gains after the New York Federal Reserve walked back dovish comments from its president, which had bolstered expectations of an aggressive interest rate cut this month. Traders expect the U.S. central bank to cut rates by 25 basis point next week, although they have scaled back bets of a bold 50 basis-point cut. Emerging markets have enjoyed a strong run-up this year as expectations of monetary policy easing from central banks to counter the impact of U.S.-China trade war on economic growth, encouraged inflows into risky, developing world assets. “We stay bearish on the US dollar but put most focus versus high-carry emerging market currencies, helped by global central bank easing,” Morgan Stanley analysts wrote in a note. “We think the most topical market question is not whether the Fed will cut 25bp or 50bp in July, but if it is enough to stop global growth weakness.” The Brazilian real gave back most of its gains made on Thursday, pulling the currency into the red for the week. The real has climbed about 10% since its May low as investors cheered progress in the government’s pension reform bill. Investors are now looking forward to the unveiling of an economic stimulus package on July 24, which was announced by President Jair Bolsonaro’s administration to revive flagging growth in Latin America’s largest economy. Heavyweight Sao Paulo-traded stocks led losses, down over 1% with financials weighing on the benchmark. Mexican stocks edged higher with mining giant Grupo Mexico providing the biggest boost after President Andres Manuel Lopez Obrador said he will seek an agreement with the company before making any “drastic decision” after a recent spill of sulfuric acid in the Gulf of California. Stocks in Colombia rose 0.5% and the peso steadied as prices of oil, the country’s top export, gained on rising tensions between the United States and Iran. Chile’s peso slid about 0.8% after its central bank said on Thursday it would keep the interest rate steady at 2.5%, in line with market expectations, but noted that pressures were rising that could warrant further cuts. Latin American stock indexes and currencies at 1952 GMT: Stock indexes daily % Latest change MSCI Emerging Markets 1057.00 0.5 MSCI LatAm 2910.14 -0.82 Brazil Bovespa 103490.94 -1.17 Mexico IPC 41679.05 0.15 Chile IPSA 5047.35 0.12 Argentina MerVal 40241.96 -1.25 Colombia IGBC 12924.74 0.52 Currencies daily % change Latest Brazil real 3.7467 -0.73 Mexico peso 19.0198 -0.40 Chile peso 688.09 -0.88 Colombia peso 3171 0.03 Peru sol 3.282 0.12 Argentina peso 42.2800 -0.42 (interbank) (Reporting by Sruthi Shankar in Bengaluru; editing by Grant McCool)

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