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EMERGING MARKETS-Mexican peso rises on U.S. deal to avert tariffs

Sruthi Shankar

June 10 (Reuters) - The Mexican peso was on track to post its biggest percentage gain this year on Monday, outperforming its Latin American peers after the country struck a migration deal with the United States to avoid higher tariffs on its exports. The peso, which has shed more than 2.5% since U.S. President Donald Trump's threat last month to impose 5% levies on all Mexican goods from Monday, was last up about 2%. Worries that Latin America's second-largest economy could slip into a recession if Trump made good on his promise to impose tariffs have sent shivers through financial markets already reeling from a U.S.-China trade dispute. Mexico on Friday agreed to rapidly expand a controversial asylum program and deploy security forces to stem the flow of illegal Central American migrants. "The market will likely take MXN back to at least the close on May 30, the level it traded before President Trump first tweeted about the tariffs," Dirk Willer, head of emerging market strategy at Citi Research, wrote in a note. "Given that EMFX has appreciated about 1% since May 30, we would expect the MXN to appreciate more from here." Mexican stocks gained 0.6%. Brazil's real dipped against a firm dollar on worries about yet another setback for the country's pension reforms.

Those concerns also hit the banking sector, sensitive to headlines on pension reforms, with Banco Bradesco SA and Itau Unibanco falling almost 2%. Chile's peso declined more than half a percent after its central bank unexpectedly cut the benchmark interest rate by 50 basis points to 2.5% on Friday as it braced for a sharper economic slowdown because of the U.S.-China trade dispute.

Key Latin American stock indexes and currencies at 1400 GMT

Stock indexes daily %Latest changeMSCI Emerging Markets 1020.56 1.31MSCI LatAm 2731.50 -0.51Brazil Bovespa 96982.47 -0.86Mexico IPC 43594.20 0.7Chile IPSA 4982.78 0.64Argentina MerVal - -Colombia IGBC - -Currencies daily %

change Latest

Brazil real 3.8900 -0.34Mexico peso 19.2372 1.94Chile peso 697 -0.75Colombia peso - -Peru sol - -Argentina peso - -

(interbank)

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