EMERGING MARKETS-Brazil markets seesaw as S&P affirms rating; Mexico peso firms

firms@ SAO PAULO, Aug 16 (Reuters) - Brazilian markets seesawed on Wednesday as credit ratings agency Standard & Poor's spared the country from a downgrade after the government loosened budget targets for years to come. Brazil on Tuesday widened its primary budget deficit goals through 2020 after lawmakers repeatedly refused to raise taxes needed to boost recession-hit revenues. The move was widely expected in financial markets, but had stoked some concern of potential action by ratings agencies. Still, S&P reaffirmed the country's "BB" rating and stripped its CreditWatch status, brushing away the possibility of a downgrade in the near term. "Any immediate move by S&P would have wreaked havoc on Brazilian markets," said Fernando Pavani, a partner at foreign exchange brokerage BeeCâmbio. The agency, however, revised Brazil's credit outlook to "negative," indicating a more-than-one-third possibility of a downgrade in the next six to nine months. The Brazilian real strengthened 0.2 percent, while the benchmark Bovespa stock index was flat. Preferred shares in petrochemical company Braskem SA rose as much as 4.5 percent after it reported a 316 percent jump in second-quarter net income. Health firm Qualicorp SA fell for a second straight day, and was the biggest decliner on the Bovespa. The two-day slump was triggered by a downgrade from analysts at Itaú BBA, with traders booking profits on the stock's recent rally following in-line results. Most other Latin American currencies treaded water as traders awaited further hints over the likelihood of an additional U.S. interest rate increase this year. A stretch of mixed economic figures has cast doubt over the U.S. Federal Reserve's plans for interest rate hikes, fueling demand for emerging market currencies. The Chilean peso was up 0.5 percent, tracking copper prices higher. The Mexican peso firmed 0.4 percent as officials began negotiations over the North American Free Trade Agreement.

Key Latin American stock indexes and currencies at 1640 GMT:

Stock indexes Latest Daily YTD pct pct

change change

MSCI Emerging Markets 1,060.47 0.76 22.06 MSCI LatAm 2,796.79 0.85 18.48 Brazil Bovespa 68,356.19 0 13.50 Mexico S&P/BVM IPC 51,033.79 -0.6 11.81 Chile IPSA 5,103.77 0.79 22.94 Chile IGPA 25,464.34 0.75 22.81 Argentina MerVal 22,723.83 0.09 34.32 Colombia IGBC 10,841.11 1.18 7.04 Venezuela IBC 186,255.80 0.46 487.46 Currencies Latest Daily YTD pct pct

change change

Brazil real 3.1658 0.20 2.63 Mexico peso 17.7325 0.44 16.98 Chile peso 645 0.47 3.98 Colombia peso 2,965.72 -0.12 1.21 Peru sol 3.242 0.09 5.31 Argentina peso (interbank) 17.1275 -0.28 -7.31 Argentina peso (parallel) 18.17 -0.11 -7.43

(Reporting by Bruno Federowski)