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EMERGING MARKETS-Vale plunge on dam burst knocks Brazil stocks; Latam FX weak

Susan Mathew

(Recasts throughout, updates prices) Jan 28 (Reuters) - Brazil stocks posted their sharpest one-day drop in seven weeks on Monday thanks to a near 25-percent plunge in shares of miner Vale after a dam disaster, while most other Latin American shares and currencies fell in line with a global market slump. The MSCI index of Latin American shares fell 1.6 percent, its worst day since Dec. 10. A decline in the currency index was capped by a 0.2 percent rise in Brazil's real. World stocks were battered after disappointing industrial profits data from China deepened worries that the world's second largest economy was cooling. The fears were further underscored by warnings from U.S. manufacturers Caterpillar and Nvidia that cited softening Chinese demand. "Risk aversion in global financial markets (is) due to the uncertainty related to the stability of economic growth," analysts at Banco Base said, adding that investors were waiting to see the results of a top-level trade meeting between the United States and China later this week. Investors were also cautious ahead of a two-day meeting of the U.S. Federal Open Market Committee, beginning on Tuesday, that is expected to signal a pause in tightening and acknowledge growing economic risks. Most regional currencies weakened against the dollar, which was little changed ahead of the FOMC meeting. Falling oil prices hurt currencies of net crude exporters such as Mexico and Colombia, while Chile's peso tracked prices of the country's main export - copper - lower. Among stocks, Brazil shares led losses, down 2.3 percent as iron ore miner Vale's tumble wiped more than $16 billion off its market capitalization. A burst tailings dam at the Corrego do Feijao mine sent a torrent of sludge into Vale's offices and the town of Brumadinho on Friday, killing at least 60 people and nearly 300 more unaccounted for. Brazil's government is considering pushing for a management overhaul at Vale, and prosecutors, politicians and victims' families are calling for punishment. "The intangible aspect of this incident is what worries us the most, and at the end of the day the entire mining industry will need to rethink the current model," said analysts at Brazilian investment banking firm BTG Pactual. The disaster occurred less than four years after a dam collapse at a nearby mine run by Samarco Mineracao SA, Vale's joint venture with BHP Group Ltd, killed 19 and dumped toxic sludge in a major river. "The reaction of the government and other public agents to the accident has been much stronger than the Samarco episode (given the magnitude of the human tragedy). This brings a lot of uncertainty to the size of the financial punishment that will hit Vale," said Igor Lima, a partner at Galt Capital. Brazil markets were closed on Friday for a local holiday. Shares of one of Vale's controlling shareholders, Bradespar , also tumbled 25 percent. Bourses in Mexico and Colombia also fell, while those in Argentina and Chile turned around to close higher.

Key Latin American stock indexes and currencies at 2139 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1028.06 -0.41MSCI LatAm 2833.88 -1.55Brazil Bovespa 95443.88 -2.29Mexico IPC 43626.15 -0.03Chile IPSA 5445.91 0.08Argentina MerVal 34840.80 0.09Colombia IGBC 11750.98 -0.18Currencies Latest Daily %

change

Brazil real 3.7614 0.06Mexico peso 19.0260 -0.24Chile peso 670.48 -0.50Colombia peso 3156 -0.17Peru sol 3.358 -0.45Argentina peso 37.1200 -0.11

(interbank)

(Reporting by Susan Mathew in Bengaluru and Paula Arend Laier in Sao Paulo Editing by Sonya Hepinstall)