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EMERGING MARKETS-Latam FX drops, Brazil's real clocks 8-month closing low

Jamie McGeever in Brasilia and Jose Gomes Neto in Sao Paulo;

(Recasts throughout, updates prices, adds quotes by market strategist and broker) May 17 (Reuters) - Latin American currencies softened on Friday against a robust dollar amid rising U.S.-China tensions, with Brazil's real facing intense selling pressure as investors' concerns about growth in Latin America's top economy gathered steam. A commentary in the Chinese Communist Party's People's Daily which said the trade war with the United States will only make China stronger jarred risk appetite globally. Locally, MSCI's index of Latin American currencies fell 0.9%, while its Latin American stocks index eased 1%, with Brazilian assets in focus amid deepening fears of growth slowing. "With rising trade tensions and risk sentiment abroad, and a souring political environment domestically, Brazilian assets have seen a sell-off in key benchmarks," Mauricio Oreng, senior Brazil strategist at Rabobank, wrote in a note. Brazil's real dived 1.3% to a near eight-month closing low. Investors see a greater probability of the country's central bank taking a more supportive policy stance amid the possibility of growth having slowed in 2019's first quarter. "It's a perfect storm for a speculative attack on the real," said a broker in Sao Paulo. "What the market is looking for is the point at which the central bank gets uncomfortable." Economy Minister Paulo Guedes said growth expectations were falling rather than growth itself, blaming fragmented domestic politics and the resulting slow progress of the government's pension reform bill in Congress. Stocks ended little changed as losses among financials and energy stocks counterweighed gains in materials stocks. Common shares and preferred shares of state-run oil firm Petroleo Brasileiro SA (Petrobras) slid 0.8% and 2.3%, respectively, amid lower Brent crude futures.

Banco do Brasil SA shed 1.7%. The lender is one of three banks Petrobras has removed from the privatization process of fuel distribution unit Petrobras Distribuidora , four sources told Reuters this week. Shares of miner Vale SA rose 2.8%, with Dalian-traded iron ore futures having hit a record peak earlier in the global day. Investors' optimism toward Brazil has waned recently following a slew of warnings on growth and the slow progress of the pension reform proposal, leading to international investors scaling back exposure to the country.

A heavily traded Brazil-focused ETF saw weekly outflows from U.S.-domiciled investors for the first week in five, Lipper estimates for the week ended Wednesday show. The ETF has shed about 10.8% this month. Mexican stocks marked time, while the peso made back some of the of ground lost earlier in the day to weaken 0.2%. U.S. President Donald Trump said his country has reached a deal with Canada to remove tariffs on aluminum and steel, paving the way for similar pact with Mexico. Argentina's peso softened, while stocks fell 1.7% as investors cashed out some chips to lock in gains made over the last three days.

Latin American stock indexes and currencies at 2050 GMT

Stock indexes daily %Latest changeMSCI Emerging Markets 996.39 -1.46MSCI LatAm 2527.16 -1.01Brazil Bovespa 89992.73 -0.04Mexico IPC 43445.62 0.01Chile IPSA 4925.58 -1.05Argentina MerVal 33315.70 -1.7Colombia IGBC 12237.24 -0.31Currencies daily %

change Latest

Brazil real 4.1001 -0.01Mexico peso 19.1604 -0.21Chile peso 695.7 -0.29Colombia peso 3320.03 -0.68Peru sol 3.33 -0.39Argentina peso (interbank) 44.9800 -0.40

(Reporting by Aaron Saldanha in Bengaluru, Additional reporting editing by Jonathan Oatis)