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EMERGING MARKETS-Brazil rate future yields drop as central bank points to further easing

further easing@ SAO PAULO, March 22 (Reuters) - Yields on Brazilian interest rate futures dropped on Thursday after the central bank unexpectedly indicated it will continue cutting interest rates at its May meeting. The bank on Wednesday reduced the benchmark Selic rate by 25 basis points to an all-time low of 6.50 percent, as widely expected. But policymakers were explicit in forecasting another cut, contradicting the consensus that this week would mark the end of the deepest easing cycle in a decade. After that, unless conditions change radically, it would stand pat, according to a policy statement. Yields on rate futures fell sharply as traders adjusted their bets. "Unless the Brazilian real comes under pressure for domestic or external reasons, the central bank will be in no hurry to begin the tightening cycle," economists at Societe Generale wrote in a report. The Brazilian real weakened around 1 percent on concerns that lower rates could dampen demand for Brazilian assets. It was the biggest loser among Latin American currencies, which suffered the effect of growing fears of U.S. protectionism. The nation's stock exchange, however, was nearly flat, as shares of steelmakers jumped after the United States government suspended a tariff hike on Brazilian steel and aluminum imports as it begins bilateral negotiations.

Key Latin American stock indexes and currencies at 1720 GMT:

Stock indexes Latest Daily YTD pct pct

change change

MSCI Emerging Markets 1,197.27 -1.02 4.42 MSCI LatAm 3,032.81 -0.5 7.77 Brazil Bovespa 84,962.60 -0.02 11.20 Mexico IPC 47,342.78 -0.38 -4.08 Chile IPSA 5,499.13 -0.66 -1.18 Chile IGPA 27,585.58 -0.6 -1.41 Argentina MerVal 32,181.70 -0.58 7.04 Colombia IGBC 11,508.38 -1.14 1.21 Currencies Latest Daily YTD pct pct

change change

Brazil real 3.3014 -1.02 0.36 Mexico peso 18.5150 -0.41 6.39 Chile peso 608 -0.69 1.09 Colombia peso 2,862.5 -0.40 4.17 Peru sol 3.241 0.31 -0.12 Argentina peso (interbank) 20.2250 0.25 -8.03 Argentina peso (parallel) 20.88 0.48 -7.90

(Reporting by Bruno Federowski Editing by James Dalgleish)