(Adds detail on Mexican rate swaps, closing prices) By Bruno Federowski SAO PAULO, July 14 (Reuters) - Latin American currencies strengthened on Friday after weaker-than-expected U.S. economic data reduced bets on a third U.S. interest rate increase this year, with Mexico's peso gaining to its strongest level against the dollar in 14 months.
U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, the latest in a run of mixed reports that have kept traders skeptical about the Fed's stated plan for one more rate hike this year and three in 2018.
On Thursday, Fed Chair Janet Yellen said it would be "quite challenging" for the United States to reach the 3 percent growth target set by President Donald Trump.
A slower pace of policy tightening could boost the allure of high-yielding emerging market assets, driving up the value of their currencies.
The Mexican peso strengthened against the dollar for the seventh straight day to reach its strongest since May 2016, while the Brazilian real firmed 0.8 percent.
Yields on Mexican interest rate swaps rose after the central bank chief said it is premature to talk about reducing interest rates in the first six to nine months of 2018.
Banco de Mexico Governor Agustin Carstens told Reuters that a pause in interest rate increases is likely at the bank's next monetary policy meeting.
Brazil's benchmark Bovespa stock index posted its fifth day of gains, with shares of engineering firm MRV Engenharia e Participações SA the biggest riser after posting solid growth in the second quarter.
Shares of Cia Energética de Minas Gerais SA, Brazil's No. 3 power utility, rose 3.3 percent after it closed a deal to transfer stakes in Transmineiras to Transmissora Aliança de Energia Elétrica, known as Taesa.
Cemig, as the utility is known, jointly controls Taesa with Brazilian investment fund Coliseu. The utility is looking to sell assets to cut debt.
Latin American stock indexes and currencies at 19:05 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1,048.51 +0.75 +20.70 MSCI LatAm 2,712.23 +0.92 +14.82 Brazil Bovespa 65,245.54 +0.10 +8.33 Mexico S&P/BVM IPC 50,906.08 -0.12 +11.53 Chile IPSA 4,992.28 +0.12 +20.26 Chile IGPA 24,925.69 +0.19 +20.22 Argentina MerVal 21,741.47 -1.07 +28.51 Colombia IGBC 11,045.25 -0.61 +9.06 Venezuela IBC 129,132.27 +0.81 +307.29 Currencies daily % YTD % change change Latest Brazil real 3.182 +0.80 +2.11 Mexico peso 17.548 +0.76 +18.22 Chile peso 657.200 +0.52 +2.05 Colombia peso 3,026.800 +0.63 -0.84 Peru sol 3.250 -0.22 +5.05 Argentina peso (interbank) 16.840 +0.67 -5.73 Argentina peso (parallel) 17.520 +0.46 -4.00 (Reporting by Bruno Federowski and Michael O'Boyle; editing by Grant McCool and Phil Berlowitz)