EMERGING MARKETS-Latam currencies trade sideways on Fed rates caution

SAO PAULO, May 25 (Reuters) - Most Latin American currencies traded sideways on Thursday after the Federal Reserve dialed down some expectations that it would hike interest rates rapidly, while political uncertainty weighed on Brazilian markets. Fed policymakers agreed they should hold off on raising rates until they see evidence a recent U.S. economic slowdown was transitory, though most said a hike was coming soon, the minutes from their last policy meeting showed on Wednesday.

Traders interpreted the minutes as a cautionary sign from the U.S. central bank, dialing back bets that it would increase rates at a fast pace in the coming months. A slower pace of U.S. rate hikes would be good news for emerging market assets, which typically lure investors with the promise of higher returns. Demand for risky currencies has suffered amid concerns U.S. President Donald Trump may struggle to pass his pro-growth economic agenda due to political scandals. Investors had bet on a U.S. growth surge boosting emerging market economies. The Mexican peso strengthened 0.1 percent on Thursday, while the Colombian peso was down 0.2 percent. Also fostering caution in Brazilian markets was growing political turmoil resulting from a scandal in which President Michel Temer was caught on tape allegedly condoning bribes to silence a key witness in a corruption case last week. Protesters demanding Temer's resignation staged running battles with police and set fire to a ministry building in the capital, Brasilia, on Wednesday, prompting Temer to order the army onto the streets. Brazil's stocks and currency were slightly lower in early afternoon trading as traders reacted cautiously to the uncertainty. Shares in pulpmakers Suzano Papel e Celulose SA and Fibria Celulose SA were the biggest gainers after announcing price hikes for international clients.

Key Latin American stock indexes and currencies at 1530 GMT:

Stock indexes daily % YTD % change change


MSCI Emerging Markets 1013.64 0.86 16.56 MSCI LatAm 2551.63 -0.26 9.3 Brazil Bovespa 63162.44 -0.15 4.87 Mexico IPC 49441.53 -0.11 8.32 Chile IPSA 4856.45 -0.31 16.98 Chile IGPA 24377.60 -0.26 17.57 Argentina MerVal 21684.59 0.76 28.18 Colombia IGBC 10731.28 -0.25 5.96 Venezuela IBC 75620.85 4.03 138.51 Currencies daily % YTD % change change


Brazil real 3.2855 -0.23 -1.10 Mexico peso 18.4340 0.07 12.53 Chile peso 668.75 0.32 0.29 Colombia peso 2909.1 -0.21 3.18 Peru sol 3.263 0.12 4.63 Argentina peso (interbank) 16.0800 0.12 -1.27 Argentina peso (parallel) 16.24 0.25 3.57

(Reporting by Bruno Federowski; Editing by Paul Simao)