EMERGING MARKETS-Real, peso retrace losses after sharp declines

Nov 27 (Reuters) - The Brazilian real rose more than 1 percent on Tuesday, a day after suffering its worst losses in more than 18 months, while Mexico's peso stemmed a three-day run of declines even as the dollar strengthened broadly. The currencies took a beating on Monday as political uncertainties, trade worries and expectation of higher U.S. interest rates sent Latin American assets tumbling. The real rose to 3.897 to the dollar on Tuesday, after Brazil's central Bank announced an auction of $2 billion on Tuesday aimed at providing liquidity to the markets at a time when companies usually send funds abroad. "The development yesterday in BRL was very unusual. We don't think BRLUSD should be at 3.90, we see it a bit lower," said Michael Bolliger, head of EM Asset Allocation at UBS Global Wealth Management in Zurich. "There's some seasonality here. Companies might send dividends back to their headquarters and trading has not been super-liquid and maybe it looks a lot worse that it actually is." Investors are focused on the team that Brazilian President-elect Jair Bolsonaro is forming and specifically on the new government's efforts to reduce Brazil's high fiscal deficit, including plans for an overhaul of the pension system. The main Bovespa index also recovered after two days of losses, supported by financial stocks. The Mexican peso gained 0.5 percent, with Mexico's incoming finance minister assuring investors that he would push for a larger primary budget surplus next year. The country's main stock index closed at its lowest level since March 2014 amid concerns about policies under President Andres Manuel Lopez Obrador's incoming leftist government as well as tensions on the U.S.-Mexico border. "You have a narrative in Mexico that is increasingly concerning for outside investors. It's a broad narrative about policy and political uncertainty," Bolliger added. The global backdrop was not favorable too, investors said. The dollar rallied against a basket of major currencies after U.S. President Donald Trump said that he would push ahead with tariffs on Chinese goods ahead of a high-stakes meeting between the presidents of both the countries at a G20 summit in Argentina over the weekend.

Key Latin American stock indexes and currencies at 1428 GMT

Stock indexes daily % YTD % change

change Latest

MSCI Emerging Markets 978.69 0.22 -15.7 MSCI LatAm 2498.07 0.13 -11.79 Brazil Bovespa 85963.35 0.49 12.51 Mexico IPC - - - Chile IPSA 5120.67 -0.25 -0.25 Argentina MerVal 31392.67 0.84 4.41 Colombia IGBC - - - Currencies daily % YTD % change

change Latest

Brazil real 3.8910 0.63 -14.85 Mexico peso 20.4178 0.97 -3.52 Chile peso 676.7 0.00 -9.17 Colombia peso - - - Peru sol - - -

(Reporting by Sruthi Shankar in Bengaluru Editing by Susan Thomas)