(Recasts throughout, adds analyst comment) SAO PAULO, May 17 (Reuters) - Brazilian stocks fell by the most in a year on Thursday while Mexican stocks closed at their lowest since the start of 2017, as rising U.S. Treasury yields sparked a sell-off of riskier assets around the globe. Latin American currencies also suffered, with the Mexican peso shedding around 0.8 percent against the U.S. dollar while Brazil's real closed over 0.7 percent weaker. Emerging market currencies have been taking a beating this month as higher U.S. yields sap demand for riskier assets. U.S. Treasury yields hit near seven-year highs on Thursday.
"All emerging market currencies are dealing with a stronger U.S. dollar and ongoing expectations of rising rates in the United States," said Gerardo Zamorano, director of investments at Brandes Investment Partners in San Diego. The steep sell-off in currencies has sparked a turn to more hawkish rhetoric by both Brazil's and Mexico's central banks. Brazil's central bank unexpectedly left its benchmark rate untouched at 6.50 percent late Wednesday, despite widespread expectations of a 25 basis-point cut. Now the market in Brazil is betting on when the central bank could lift borrowing costs, which could crimp corporate profits as debt costs rise. "The stock market was heading for a recovery," said Leandro Martins an analyst at Modalmais. The central bank's move "totally changed the scenario." Brazil's Bovespa stock index sank 3.37 percent, its biggest one-day percentage drop since May 2017. Mexico's benchmark IPC stock index fell more than 1.3 percent to close at its lowest level in 16 months. Mexico's central bank held its benchmark interest rate steady on Thursday, but policymakers warned that uncertainty surrounding trade talks with the United States and Canada as well as domestic elections could negatively affect the peso.
Nomura economists said Brazil's October presidential election, widely seen as the hardest to predict in decades, could also weigh on appetite for the nation's assets going forward.
Key Latin American stock indexes and currencies at 2000 GMT:
Stock indexes Latest Daily YTD pct pct
MSCI Emerging Markets 1,142.86 -1.06 -0.29 MSCI LatAm 2,748.56 -2.74 -0.08 Brazil Bovespa 83,866.54 -3.09 9.77 Mexico IPC 45,794.70 -1.35 -7.21 Chile IPSA 5,684.54 -0.76 2.16 Chile IGPA 28,742.67 -0.74 2.72 Argentina MerVal 31,824.70 0.52 5.85 Colombia IGBC 12,189.10 -1.43 7.20 Venezuela IBC 22,502.78 3.24 1681.5
Currencies Latest Daily YTD pct pct
Brazil real 3.7046 -0.73 -10.56 Mexico peso 19.7275 -0.80 -0.14 Chile peso 632.35 -0.30 -2.80 Colombia peso 2,903.9 -1.54 2.69 Peru sol 3.273 -0.31 -1.10 Argentina peso (interbank) 24.3000 -0.04 -23.46 Argentina peso (parallel) 25.1 -0.40 -23.39
(Additional reporting by Rodrigo Campos in New York; Editing by Tom Brown)