(Adds market details throughout) Jan 10 (Reuters) - Latin American currencies fell against a strong dollar on Thursday after Federal Reserve Chairman Jerome Powell said the central bank intends to further shrink the balance sheet, suggesting it may not be done tightening monetary policy yet.
MSCI's index for Latin American currencies fell 0.3 percent with Brazil's real and Argentina's peso leading declines as the U.S. dollar rallied from three-month lows after the Fed Chairman's comments.
Powell also said he did not see near-term recession risk for the world's largest economy but raised concerns about the size of U.S. debt causing Wall Street indexes to fall although they later closed higher.
His statement about the amount of the budget deficit and the national debt rising spooked the market a little bit, said Randy Frederick, vice president of trading and derivatives for Charles Schwab.
Meanwhile, stocks in Latin America were mostly positive, with Brazil's Bovespa closing at a historical high after having hit the 94,000 mark at the day's high, driven by banking stocks and as investor sentiment remained positive towards the country's proposed reforms led by President Jair Bolsonaro.
Bolsonaro's proposed overhaul of the country's costly state pension system is being seen as a game changer as it is believed to be the main cause of chronic budget deficits and a mounting and unsustainable public debt.
The largest gainers on the Bovespa index were consumer electronics firm Via Varejo and credit lending firm Cielo, while the biggest drag was Brazilian wireless carrier Tim Participacoes after Credit Suisse changed its outlook to "neutral" for the stock.
Buenos Aires' MerVal stock index climbed over 1 percent boosted by gains of financial and energy stocks led by holding company Grupo Supervielle SA, the top gainer on the index.
Chile's benchmark index recorded its tenth consecutive rise led by gains in shares of forestry companies, while the country's currency closed a shade higher driven by currency sales by banks and institutional funds.
Stock markets in Mexico closed higher but cautious sentiment weighed as the country faced a mounting crisis as gasoline shortages spread across the country after the government closed several key pipelines to prevent theft by organized crime groups.
The head of Mexico's central bank said on Thursday that the country's economy and inflation rate could be negatively affected if fuel distribution problems persist.
Key Latin American stock indexes and currencies at 2130 GMT Stock indexes Latest Daily pct change MSCI Emerging Markets 998.67 0.43 MSCI LatAm 2,833.15 0.33 Brazil Bovespa 93,805.93 0.21 Mexico IPC 43,709.34 0.14 Chile IPSA 5,297.95 0.64 Argentina MerVal 34,167.45 1.18 Colombia IGBC 11,628.48 0.34 Currencies Latest Daily pct change Brazil real 3.7105 -0.87 Mexico peso 19.1332 0.47 Chile peso 675.2 0.02 Colombia peso 3,135.4 -0.05 Peru sol 3.341 -0.09 Argentina peso 36.8500 -1.12 (Reporting by Agamoni Ghosh in Bengaluru; Additional reporting Sruthi Shankar and Medha Singh; Editing by Phil Berlowitz)