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EMERGING MARKETS-Tariffs, rating action hurt Mexican peso; other Latam currencies climb

Susan Mathew

currencies climb@ June 6 (Reuters) - Latin American currencies firmed against a weak U.S. dollar on Thursday, while Mexico's peso dropped to five-month lows amid concerns over the threat of U.S. tariffs and following downgrades by rating agencies. The dollar weakened significantly in part due to the euro's strength as the European Central Bank refrained from hinting at an interest rate cut, and partly on rising speculation of an interest rate cut by the U.S. Federal Reserve. Regional currencies rose between 0.1% and 0.5%, with higher oil prices helping crude exporter Colombia's peso stay at three-week highs. Moody's said on Wednesday Colombia's economic activity was poised for a moderate pickup over the next two years, but warned economic growth would not fully compensate for sector-specific risks. Mexico's peso slipped 0.9% to five-month lows. Late on Wednesday Fitch downgraded Mexico's sovereign debt rating to BBB, nearing junk status, pointing to risks posed by ailing state oil firm Pemex and trade tensions, while Moody's lowered its outlook to negative. The hit to sentiment was reinforced by U.S. President Donald Trump saying "not enough" progress was made on ways to curb the flow of migrants at the U.S. border with Mexico when the two sides met for talks on Wednesday. Talks are set to resume on Thursday led by the U.S. State Department. Meanwhile, Mexico has prepared a list of U.S. products that could face retaliatory tariffs, with a focus on Republican-leaning agricultural states.

"In our view, risks for the Mexico peso remain skewed to the downside, given the threat of tariffs and the Mexican administration's yet untested ability to respond and coordinate," Morgan Stanley analysts wrote in a note. Brazil's real rose 0.1%. Responding to media reports, Brazil's economy ministry said it had no plans to alter its spending ceiling rules, which cap public spending growth at the rate of inflation. Stocks in Sao Paulo climbed 0.6% on broad-based gains. Electronics and appliance retailer Via Varejo was the top gainer, up 4%, after it launched a digital bank on Wednesday targeting low-income clients in partnership with Boston-based startup Airfox. On the pension reform front, a key Brazilian Congressional committee report on pension reform - representing the next step in the bill's passage through Congress - will not be presented until next week, a source with knowledge of a matter said.

Key Latin American stock indexes and currencies at 1347 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1002.60 -0.21MSCI LatAm 2709.21 0.31Brazil Bovespa 96564.04 0.59Mexico IPC - -Chile IPSA 4966.24 0.18Argentina MerVal - -Colombia IGBC 12013.36 -0.07Currencies Latest Daily %

change

Brazil real 3.8750 0.50Mexico peso 19.7620 -0.95Chile peso 691.2 0.24Colombia peso 3286.51 0.52Peru sol 3.34 0.3Argentina peso - -

(interbank)

(Reporting by Susan Mathew in Bengaluru; Editing by Bernadette Baum)