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EMERGING MARKETS-Brazilian real, Mexican peso dip amid selloff

By Bruno Federowski BRASILIA, May 18 (Reuters) - The Brazilian and Mexican currencies weakened and stocks across Latin America fell on Friday as a global emerging-market selloff drove many investors to unwind bets on stronger currencies despite increased central bank intervention.

The real fell as much as 2 percent against the dollar to the weakest since March 2016, before recovering slightly to close 1 percent lower.

The currency weakened for a sixth straight day, capping an 11.3 percent decline since the beginning of the year that made it the second-worst performing currency in Latin America, behind only the Argentine peso.

Mexico's peso also fell more than 1 percent against the dollar as leaders in the United States and Mexico threw cold water on the prospect of a quick renegotiation of the North American Free Trade Agreement (NAFTA). The peso and the benchmark Mexican stock index have now fallen for five weeks in a row.

Bets that a wider U.S. fiscal deficit and accelerating inflation could drive the Federal Reserve to raise interest rates more than expected have bumped up U.S. bond yields, luring capital away from higher-yielding emerging-market assets.

The selloff has extended for weeks, surprising many who were certain that the rout would fade quickly. A Reuters poll of foreign exchange strategists earlier this month suggested Latin American currencies would likely recoup much of their losses in coming months, though many warned of vulnerabilities in Argentina and Brazil.

The currency weakness came even after Brazil's central bank increased market intervention and unexpectedly refrained from cutting interest rates this week.

The move highlights how emerging-market central banks have struggled to support their currencies. The Argentine peso weakened around 1 percent on Thursday even as the country's central bank offered to sell additional dollars.

Key Latin American stock indexes and currencies at 2100 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 1137.75 -0.55 -1.79 MSCI LatAm 2701.40 -1.89 -4.48 Brazil Bovespa 83081.88 -0.65 8.74 Mexico IPC 45666.77 -0.26 -7.47 Chile IPSA 5667.86 -0.38 1.86 Chile IGPA 28679.66 -0.29 2.50 Argentina MerVal 31869.82 0.2 6.00 Colombia IGBC 12127.22 -0.51 6.65 Venezuela IBC 22947.40 1.98 1716.69 (Reporting by Bruno Federowski Editing by Susan Thomas and Will Dunham)