SAO PAULO, Nov 7 (Reuters) - Brazilian stocks fell on Tuesday on fading expectations that President Michel Temer will manage to further cut government spending after corruption charges drained his political clout. Finance Minister Henrique Meirelles on Tuesday said that Temer's pension overhaul plan, which is seen by investors as key to curbing growth of public debt, could be approved next year if there is no time to do so in 2017. Nevertheless, traders remained skeptical of such prospects, with wide-open presidential elections fast approaching and reducing the prospects of any meaningful reforms. That could drive lawmakers allied to the unpopular center-right president to water down the plan in order to guarantee passage. "The market is working with the assumption of a very limited reform," analysts at Citibank wrote in a client note. The benchmark Bovespa stock index fell 1.6 percent to a two-month low, with shares of loyalty program Smiles SA the biggest decliners. Smiles on Monday reported operating profits below analyst expectations, driving investors to book profits on the stock's recent rally. In a client note, analysts at Banco BTG Pactual SA said the stock is no longer "a bargain." Still, shares in Brazilian rental car agency Localiza Rent a Car SA hit a 10-month high after the company posted strong top-line gains in the third quarter. The Brazilian real was down 0.5 percent, in line with the Mexican peso, as investors renewed bets that U.S. interest rates will rise faster-than-expected in coming months as the economy recovers. Higher U.S. rates could drive investors away from high-yielding assets in emerging markets.
Key Latin American stock indexes and currencies at 1530 GMT:
Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1135.37 0.38 31.17 MSCI LatAm 2789.60 -0.65 19.96 Brazil Bovespa 73147.67 -1.57 21.45 Mexico S&P/BVM IPC 49202.26 0.48 7.80 Chile IPSA 5520.01 -0.14 32.97 Chile IGPA 27739.08 -0.12 33.78 Argentina MerVal 28441.66 1.66 68.12 Colombia IGBC 10610.74 0.35 4.77 Venezuela IBC 708.66 -0.1 -97.76 Currencies daily % YTD % change change
Brazil real 3.2749 -0.52 -0.78 Mexico peso 19.1120 -0.49 8.54 Chile peso 633.3 -0.19 5.91 Colombia peso 3036.49 -0.01 -1.15 Peru sol 3.24 -0.06 5.37 Argentina peso (interbank) 17.6450 0.03 -10.03 Argentina peso (parallel) 17.98 0.17 -6.45
(Reporting by Bruno Federowski; Editing by Andrea Ricci)