EMERGING MARKETS-Latam currencies fail to capitalize on soft dollar, stocks rise

rise@ (Recasts, updates prices, adds market strategists' quote) Dec 18 (Reuters) - Latin American currencies failed to gain against a weak dollar on Tuesday, as cautious investors pared exposure ahead of the end of the U.S. Federal Reserve's two-day meeting on Wednesday, while Latin American stocks ticked up in line with their U.S. peers. Market participants shirked riskier assets in emerging markets and exited bullish positions on the dollar, adding safe haven currencies such as Japan's yen and the Swiss franc to their portfolios. In the United States, the Dow Jones Industrial Average and the Nasdaq Composite recorded minor gains while the S&P 500 ended flat. Many investors are betting the Fed will signal a cautious outlook to its path for raising interest rates in 2019. A hike in borrowing costs on Wednesday is broadly expected, with markets according that outcome a probability of about 73 percent, as per the CME FedWatch tool. "With expectations going into the meeting already dovish, the risk reward is not great, especially for EM currencies against a weak macro backdrop," Citigroup Head of Emerging Market Strategy Dirk Willer and Emerging Markets FX Strategist Kenneth Lam wrote in a note. Brazil's real weakened 0.3 percent while the Bovespa stocks index tacked on 0.2 percent, aided by gains in the financials and materials sectors. Giant miner Vale SA rose for a fourth straight session, trading up 0.4 percent. However, state-controlled oil firm Petroleo Brasileiro slid 3.4 percent to a more than two month closing low, weighed on by a steep drop in global oil prices.

Mexican stocks gained 1.4 percent to make back a chunk of Monday's 2.4 percent loss while the peso was little changed before the Fed decision. The central bank of Latin America's second largest economy is due to take a call on interest rates a day after the Fed, on Thursday. The Banco de Mexico is expected to raise its key interest rate by 25 basis points to 8.25 percent, which would be its highest level since August 2008, a Reuters poll found.

Matching the negative sentiment of its regional currency peers, Colombia's peso slid 0.9 percent, while its Chilean peer weakened 0.3 percent. Argentina's equity benchmark slipped 0.4 percent to sink to a fresh near one-month closing low, while its peso softened marginally.

Key Latin American stock indexes and currencies at 2127 GMT

Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 962.98 -0.5 -16.87 MSCI LatAm 2522.76 0.49 -10.8 Brazil Bovespa 86610.49 0.24 13.36 Mexico IPC 40884.29 1.35 -17.16 Chile IPSA 5116.83 0.23 0.23 Argentina MerVal 29777.26 -0.37 -0.96 Colombia IGBC 11361.04 -0.31 -0.08 Currencies daily % YTD % change change

Latest

Brazil real 3.9118 -0.28 -15.30 Mexico peso 20.0857 -0.08 -1.93 Chile peso 689.8 -0.29 -10.89 Colombia peso 3203.56 -0.79 -6.92 Peru sol 3.347 -0.24 -3.29 Argentina peso 38.2600 0.05 -51.39

(interbank)

(Reporting by Aaron Saldanha in Bengaluru Editing by Alistair Bell)