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EMERGING MARKETS-Mexican assets drop on report Trump could pull NAFTA plug

SAO PAULO/MEXICO CITY, Jan 10 (Reuters) - Mexico's currency weakened against the dollar on Wednesday and stocks extended losses after Reuters reported that Canada increasingly believes that U.S. President Donald Trump will soon announce his intention to withdraw from NAFTA. Two government sources told Reuters they expected Trump to pull the plug at about the same time that negotiators from the United States, Canada and Mexico meet in late January for the sixth round of talks to modernize the North American Free Trade Agreement (NAFTA). Mexico's peso reversed slight gains against the dollar after the report, and was trading down around 0.4 percent. The S&P/BM IPC stock index was down about 1.8 percent, heading for its biggest loss since Oct. 25. Trump has repeatedly threatened to walk away from NAFTA, a lynchpin of the Mexican economy, unless Canada and Mexico agree to major changes Washington claims are needed to make the 1994 pact more fair to U.S. workers and businesses. Yields on short-term Brazilian interest rate futures inched up on Wednesday as higher-than-expected inflation data for 2017 drove traders to trim bets on two additional interest rate cuts. Price pressures have been muted for months in Brazil, curbed growth. That may allow the central bank to keep rates at all-time lows for a long time, bolstering the economy's recovery. The benchmark Bovespa stock index fell 0.84 percent, extending losses for a second day as traders booked profits from a rally early in the year that took it to all-time highs.

Key Latin American stock indexes and currencies at 20:47 GMT:

Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1197.84 -0.61 4.03 MSCI LatAm 2931.06 -0.76 4.43 Brazil Bovespa 78200.57 -0.84 2.35 Mexico IPC 48817.09 -1.78 -1.09 Chile IPSA 5678.09 -0.56 2.04 Chile IGPA 28570.82 -0.52 2.11 Argentina MerVal 31618.65 -1.62 5.17 Colombia IGBC 11807.49 -0.64 3.84 Venezuela IBC 1327.47 1.98 -95.81 Currencies daily % YTD % change change

Latest

Brazil real 3.2280 -0.02 2.64 Mexico peso 19.3000 -0.33 2.07 Chile peso 608.37 -0.06 1.03 Colombia peso 2888.5 0.67 3.24 Peru sol 3.222 -0.12 0.47 Argentina peso (interbank) 18.6100 1.91 -0.05 Argentina peso (parallel) 19.27 1.40 -0.21

(Reporting by Bruno Federowski in Sao Paulo & Anthony Esopsito in Mexico City; Editing by Paul Simao and Meredith Mazzilli)