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EMERGING MARKETS-Mexico peso down on strong U.S. factory data

SAO PAULO, July 3 (Reuters) - The Mexican peso slipped on Thursday after U.S. manufacturing activity increased to its strongest level in nearly three years, driving expectations of faster rate hikes in coming months. An index of national factory activity tracked by the Institute for Supply Management rose to 57.8 last month, the strongest reading since August 2014, driving U.S. 10-year yields to their highest levels in seven weeks. The figures allayed some concern over the pace of economic recovery that had left traders skeptical of the Federal Reserve's stated plan of raising U.S. rates once more before the end of 2017 and another three times next year. A faster policy tightening could dampen the allure of high-yielding emerging market assets, weighing down on the value of their currencies. The Mexican peso weakened 0.6 percent, tracking currencies from other emerging markets lower. Trading volumes were thin ahead of the U.S. July Fourth holiday on Tuesday. The Brazilian real, however, was nearly flat. Traders cited soothing fears that a corruption scandal could delay President Michel Temer's agenda of economic structural reforms. Brazil's benchmark Bovespa stock index rose 0.4 percent as rising prices of iron ore lifted shares of miner Vale SA. Shares of sewage and water utility Cia de Saneamento de Minas Gerais SA, which are not part of the benchmark index, soared after regulators allowed the Brazilian water and sewage utility to raise tariffs by more than expected.

Latin American stock indexes and currencies at 1550 GMT:

Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1013.12 0.23 17.23 MSCI LatAm 2551.41 0.29 8.69 Brazil Bovespa 63162.55 0.42 4.87 Mexico S&P/BVM IPC 50062.57 0.41 9.68 Chile IPSA 4745.66 -0.03 14.31 Chile IGPA 23782.41 -0.02 14.70 Argentina MerVal 22158.44 1.32 30.98 Colombia IGBC 10891.25 0.43 7.54 Venezuela IBC 123355.27 0.1 289.07 Currencies daily % YTD % change change

Latest

Brazil real 3.3020 0.31 -1.60 Mexico peso 18.2365 -0.64 13.75 Chile peso 663.7 0.00 1.05 Colombia peso 3044 -0.08 -1.40 Peru sol 3.246 0.00 5.18 Argentina peso (interbank) 16.6000 -0.57 -4.37 Argentina peso (parallel) 16.79 -0.48 0.18

(Reporting by Bruno Federowski; editing by Grant McCool)