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EMERGING MARKETS-Brazil stocks brush off S&P downgrade; Mexican peso recovers

(Updates prices, adds details on Mexican peso) SAO PAULO, Jan 12 (Reuters) - Brazil's benchmark index remained flat on Friday to hew close to its recent record high, shrugging off a sovereign ratings downgrade by Standard & Poor's, while Mexico's peso gained on market optimism that key trade talks will continue. S&P on Thursday cut Brazil's credit rating deeper into junk territory as doubts grew about a presidential election in October and a push to trim its costly pension system.

The move was widely expected after lawmakers last December pushed a key vote on the unpopular pension bill to February. Investors see the pension overhaul, a landmark proposal of President Michel Temer, as crucial to curtailing public debt and safeguarding long-term economic growth. Some said the downgrade could help Temer pressure lawmakers into approving the plan to avoid further damage. "The government will certainly use this downgrade to pressure Congress, though it is still highly uncertain whether it will be successful in doing so," analysts at Coinvalores brokerage wrote in a client note. Equities in real estate and utilities were among the decliners on Brazil's benchmark Bovespa stock index while the real remained flat. The Mexican peso strengthened 1.13 percent, helped that he would be "flexible" on his threat to withdraw from the North American Free Trade Agreement (NAFTA) because Mexico faces a presidential election in July. "Trump's statements helped the Mexican currency to cut losses and reach its best level yet in 2018. Investors now believe that the NAFTA renegotiation process will continue," CI Bank said in a report. The next round of negotiations will take place later this month. Mexico's benchmark IPC index gained slightly, partially pushed by bank Grupo Financiero Banorte, whose shares rose 2.74 percent.

Key Latin American stock indexes and currencies at 2050 GMT:

Stock indexes Latest Daily YTD pct pct change

change

MSCI Emerging Markets 1,209.71 1.06 3.33 MSCI LatAm 2,990.31 0.96 4.73 Brazil Bovespa 79,349.12 -0.02 3.86 Mexico IPC 49,141.69 0.7 -0.43 Chile IPSA 5,733.35 0.27 3.03 Chile IGPA 28,829.85 0.26 3.03 Argentina MerVal 32,762.66 2.13 8.97 Colombia IGBC 11,623.57 -0.22 2.22 Venezuela IBC 1,649.36 18.57 30.58 Currencies Latest Daily YTD pct pct change

change

Brazil real 3.2058 -0.03 3.35 Mexico peso 19.0590 1.13 3.36 Chile peso 602.86 0.40 1.96 Colombia peso 2,859.55 -0.23 4.28 Peru sol 3.216 0.06 0.65 Argentina peso 18.6800 0.16 -0.43

(interbank)

Argentina peso (parallel) 19.49 -0.41 -1.33

(Reporting by Bruno Federowski, Flavia Bohone, Daina Beth Solomon and Miguel Angel Gutierrez; Editing by Bernadette Baum and Diane Craft)