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EMERGING MARKETS-Mexico peso weakens as U.S. retail sales foster rate hike bets

bets@ (Updates prices) SAO PAULO, Aug 15 (Reuters) - The Mexican peso weakened on Tuesday after news of the largest gain in U.S. retail sales in seven months, leading traders to rethink skepticism about a potential U.S. rate hike this year. The retail sales report suggested the U.S. economy had momentum early in the third quarter and an upward revision to the data for May and June relieved concerns about a slowdown in consumer spending at the start of the year. The report likely keeps the Federal Reserve on track to hike again in December, potentially draining funds away from emerging markets, BGC Liquidez currency trader Francisco Carvalho said. The Mexican peso weakened about 0.3 percent. Losses were limited, however, by easing tensions between the United States and North Korea, which drove some demand for risky assets and triggered a second day of gains in stock markets in developed economies. Pyongyang state media said that North Korean leader Kim Jong Un has delayed a decision on firing missiles toward Guam while he waits to see what the United States does next. Fears over military conflict had driven sharp losses in emerging markets last week. Latin American stock markets were mixed on Tuesday, with Brazil's benchmark Bovespa stock index rising in the wake of a strong batch of corporate updates. Mall operator BR Malls Participações SA, food processor Marfrig Global Foods SA and meatpacker JBS SA all rose after reporting second-quarter results. Argentine markets jumped after results from the country's mid-term legislative primary election were expected to favor business-friendly President Mauricio Macri, and the peso extended gains for a second day.

Latin American stock indexes and currencies at 1935 GMT:

Stock Latest daily % YTD % change indexes change MSCI Emerging Markets 1053.96 0.03 22.19 MSCI LatAm 2790.36 0.19 18.98 Brazil Bovespa 68565.33 0.41 13.84 Mexico IPC 51291.68 0.24 12.38 Chile IPSA 5063.73 0.6 21.98 Chile IGPA 25275.43 0.61 21.90 Argentina MerVal 22670.40 0.58 34.00 Colombia IGBC 10698.88 -0.99 5.64 Venezuela IBC 185411.92 -0.83 484.80 Currencies Latest daily % YTD % change

change

Brazil real 3.1769 0.76 2.28 Mexico peso 17.8150 -0.31 16.44 Chile peso 648 0.00 3.50 Colombia peso 2962.2 0.18 1.33 Peru sol 3.245 -0.06 5.21 Argentina peso (interbank) 17.0600 0.44 -6.95 Argentina peso (parallel) 18.1 0.00 -7.07

(Reporting by Bruno Federowski; editing by Grant McCool and Dan Grebler)