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EMERGING MARKETS-Latam FX down, Mexican peso extends slide after rate cut

By Susan Mathew

(Adds Mexico central bank decision, analyst comment; updates prices) By Susan Mathew Sept 26 (Reuters) - Latin American currencies fell against a slightly firmer dollar on Thursday, with the Mexican peso down after an expected interest rate cut by the Mexican central bank. The peso extended its decline to a second day, down 0.3% after touching a three-week low during the session. Mexico's main stock index dipped 0.2%. The country's central bank cut the benchmark interest rate by 25 basis points for a second time this year, to 7.75%. It cited slowing inflation and widening slack in the economy, but forecast a slight recovery over the rest of the year. "It's bit on the dovish side, which means there are more cuts ahead, which is reasonable," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman. Data earlier in the day showed the economy contracted at the start of the third quarter. "The danger is that they cut too fast. If the central bank is perceived as cutting rates too aggressively, I think peso will come under pressure," added Thin. The cut came a day after Mexican markets were knocked by uncertainty regarding U.S. ratification of Mexico's trade deal with Canada and United States. U.S. House Speaker Nancy Pelosi affirmed On Thursday that the House of Representatives is moving ahead with the deal. Other Latam currencies also fell, with the dollar index , which measures the greenback against six major rivals, up 0.1%. Brazil's real slipped 0.3%, while Colombia's peso gave up half a percent. Brazil's central bank raised its 2019 economic growth forecast slightly but warned that the outlook remains tinged with a "high degree of uncertainty." BBH's Thin expects the dollar's strength to sustain and pressure emerging market currencies. Given the current state of the U.S. economy, with economic growth being revised up and inflation rising, markets have ticked back their expectations of policy easing by the U.S. Federal reserve, he says, which is positive for the dollar. "Markets should be a little less worried about recession and a little more about inflation." Stocks in the region were mixed. Chile stocks rose, as did Brazil's Bovespa index, which climbed 0.8%. Shares of Brazil's state oil firm Petroleo Brasileiro gained 1% after it doubled down on its oil and gas strategic plan. Planemaker Embraer, however, slipped to the bottom of the index after it said the European Commission indicated it intends to open an in-depth investigation of Boeing's bid for a controlling stake in Embraer's commercial aircraft arm. Shares in Colombia were flat, while Argentina fell. The moves were in line with the sluggishness in U.S. stocks. Key Latin American stock indexes and currencies at 1951 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1008.89 0.33 MSCI LatAm 2684.35 0.71 Brazil Bovespa 105271.81 0.76 Mexico IPC 42940.71 -0.17 Chile IPSA 5026.19 0.4 Argentina MerVal 28165.99 -0.165 Colombia IGBC 13008.94 0 Currencies Latest Daily % change Brazil real 4.1612 -0.20 Mexico peso 19.6355 -0.37 Chile peso 725.9 0.08 Colombia peso 3443.75 -0.45 Peru sol 3.382 -0.95 Argentina peso 57.2100 -0.24 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Dan Grebler)