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EMERGING MARKETS-Latam FX firm on ECB's dovish boost, Brazil stocks jump 1%

Susan Mathew

June 18 (Reuters) - Latin American currencies firmed on Monday, with the Mexican peso hitting its highest in more than two weeks, boosted by the European Central Bank president's dovish comments. ECB President Mario Draghi said the bank will need to ease policy again, possibly through new rate cuts or asset purchases, if inflation doesn't head back to its target. "EM assets have bounced on the dovish ECB," said strategists at Morgan Stanley. "Perhaps markets believe that the ECB moves will reactivate the euro-funded carry trade, and that this would be enough for EM to keep strengthening versus the dollar, despite a weak euro-dollar pair," they said, cautioning however that any additional dollar strength could weigh on EM currencies. At 1353 GMT, the dollar was steady, bracing for the outcome on Wednesday of the U.S. Federal Reserve's meeting, when analysts increasingly expect the bank to signal that a rate cut may be in the offing. Brazil's real jumped 1%, extending last session's gains, while Mexico's peso climbed 0.5% to its highest since May 30 - with the ECB boost helping them rise amid shaky local political scenes. In Mexico, President Andres Manuel Lopez Obrador proposed holding a recall referendum on his presidency on March 21, 2021, if Congress cannot agree to a constitutional change permitting the vote during mid-term legislative elections. Meanwhile, in Brazil President Jair Bolsonaro on Monday appointed Gustavo Montezano as the head of development bank BNDES, replacing Joaquim Levy who resigned on Sunday after Bolsonaro publicly criticized him. Analysts at brokerage XP Investimentos said on Monday that whatever the merits of Levy's exit, it does not reflect well on the government or its efforts to paint Brazil as an attractive and politically stable destination for foreign capital. Sao Paulo-traded stocks rose 1% on broad-based gains, in line with other emerging market peers and world stocks. But, local listed shares of airline Azul SA lost 0.7%. Bolsonaro on Monday signed a bill into law allowing foreign airlines to operate domestic flights in Brazil, a move that could usher in new competition or lead foreign carriers to buy up the local players. Petrochemical company Braskem SA lost 0.8% controlling shareholder Odebrecht SA filed on Monday for bankruptcy protection.

Key Latin American stock indexes and currencies at 1353 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1024.73 1.36MSCI LatAm 2793.19 2.18Brazil Bovespa 99030.04 1.44Mexico IPC 43112.64 0.34Chile IPSA - -Argentina MerVal - -Colombia IGBC 12282.79 0.25Currencies Latest Daily %

change

Brazil real 3.8540 1.19Mexico peso 19.0470 0.68Chile peso 696.1 0.59Colombia peso 3263.8 0.53Peru sol 3.3370 0.13Argentina peso 43.9300 0.16

(interbank)

(Reporting by Susan Mathew in Bengaluru Editing by Nick Zieminski)