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EMERGING MARKETS-Brazil markets extend gains after Lula found guilty of corruption

corruption@ SAO PAULO, July 12 (Reuters) - Brazil's stocks and currency further strengthened on Wednesday after former President Luiz Inácio Lula da Silva was convicted of corruption charges, reducing trader fears that he could return to office next year and challenge the pro-business agenda of incumbent President Michel Temer. Lula, who was sentenced to nine and a half years in prison, would be barred from office if his guilty verdict is upheld by an appeals court, which is expected to take at least eight months to rule. Many traders fear Lula, a leftist who has consistently led voting polls for the 2018 presidential elections, could overturn Temer's efforts to curb growth of public debt and implement sweeping structural reforms. "This makes traders hopeful that the government's market-friendly platform may extend beyond 2018," Renascença brokerage trader Thiago Castro said. "Still, there's a long way to go before we see a ruling by the appeals court." The Brazilian real gained as much as 1.5 percent to its strongest since May 17, when news broke of a corruption scandal threatening to derail Temer's agenda drove the currency sharply lower. The benchmark Bovespa stock index rose to a session high, supported by a rally in shares of state-controlled oil company Petróleo Brasileiro SA. Brazilian markets traded higher throughout the day after an overhaul of the country's labor laws won Senate approval by a wider margin than expected, suggesting lawmaker support for Temer's reform agenda remained strong despite the corruption scandal. Many investors see the reform, part of a package of structural reforms that also includes measures to streamline country's bloated pension system, as crucial to Brazil's long-term growth. Other Latin American markets advanced after Federal Reserve Chair Janet Yellen indicated that the U.S. central bank may raise interest rates less than previously suggested. Yellen said in testimony to the U.S. Congress that interest rates "would not have to rise all that much further" to reach what the Fed considers a neutral rate. A slower pace of rate hikes would increase the allure of high-yielding emerging market assets. The Mexican peso surged to a more than one-year high, bolstered by growing confidence that U.S. President Donald Trump will not pull out of NAFTA, as well as a major oil discovery. Expectations that Trump will not shred the North American Free Trade Agreement have fed demand for the peso and helped make it the top-performing emerging-markets currency this year, with a 17 percent gain. On Wednesday it was 3 percent stronger than just before Trump won the election.

Key Latin American stock indexes and currencies at 1840 GMT:

Stock indexes daily % YTD %

change change Latest

MSCI Emerging Markets 1032.03 1.36 18.08 MSCI LatAm 2669.17 2.08 11.71 Brazil Bovespa 64850.74 1.6 7.68 Mexico S&P/BVM IPC 50655.20 0.29 10.98 Chile IPSA 4953.94 1.21 19.33 Chile IGPA 24719.97 1.06 19.22 Argentina MerVal 22193.72 0.3 31.19 Colombia IGBC 11079.73 0.78 9.40 Venezuela IBC 124511.78 -1.1 292.72 Currencies daily % YTD %

change change Latest

Brazil real 3.2111 1.26 1.19 Mexico peso 17.7900 0.67 16.60 Chile peso 662.9 0.54 1.18 Colombia peso 3047.1 0.90 -1.50 Peru sol 3.251 0.15 5.01 Argentina peso (interbank) 16.9450 0.37 -6.31 Argentina peso (parallel) 17.45 -0.17 -3.61

(Reporting by Bruno Federowski; Additional reporting by Noel Randewich; Editing by Jonathan Oatis and Steve Orlofsky)