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UPDATE 2-Mexico, Canada dismiss Trump threats to scrap NAFTA trade pact

(Recasts lead, adds comment from Canadian official)

MEXICO CITY/OTTAWA, Aug 23 (Reuters) - Mexico and Canada on Wednesday dismissed U.S. President Donald Trump's threat to scrap NAFTA, describing it as a negotiating tactic designed to gain an advantage during talks to update one of the world's biggest trading blocs.

In comments that initially pushed Mexico's peso currency down by more than 1 percent, Trump on Tuesday reiterated his threats to terminate the North American Free Trade Agreement. Trump has long called the 1994 treaty a bad deal that hurt American workers, saying it should be re-negotiated or ended.

Initial talks between Mexico, the United States and Canada to update NAFTA ended in Washington over the weekend with no sign of a breakthrough, and further discussions are due in Mexico City in September.

Mexican Foreign Minister Luis Videgaray sought to brush off Trump's threat, saying his remarks were simply a tactic and Mexico would keep negotiating. The comments were not a surprise, nor would they scare Mexico, he added.

"He's negotiating in his own particular style," he told local television.

The peso later recovered all its losses. NAFTA's fate is important to Mexico and Canada, which both send most of their exports to the United States.

A Canadian official said Ottawa would not be deterred by Trump's threat, given the government had been bracing for moments of turbulence.

"This was always a card we knew the president would likely play ... it may have been a bit earlier than expected," said the official, who declined to be identified given the sensitivity of the situation.

"It's not going to cause us to waver at all in our position ... (we) won't really be deterred by these statements," the official added.

Separately, the office of Foreign Minister Chrystia Freeland issued a statement saying Canada would work hard to modernize NAFTA and noted trade talks often had moments of heated rhetoric.

Mexico's currency fell to record lows following Trump's victory in the U.S. presidential election last November, with investors scared he could hurt Mexican exports and cause a recession south of the border.

However, the peso has recovered since then, as many of investors' worst fears seemed to subside.

In recent months, peso traders increasingly appeared to pay little heed to some of Trump's comments, helping a recovery in the currency.

But Trump's remarks showed traders remain skittish about the future of NAFTA, and highlighted the complexity of the talks. (Additional reporting by Veronica Gomez in Mexico City; Editing by Frances Kerry and Tom Brown)