(Recasts throughout, updates prices, adds trader's quote) By Aaron Saldanha Feb 6 (Reuters) - Latin American stocks dropped like a stone on Wednesday, punished by a 3.7 percent tumble in Brazilian shares, while currencies in the region broadly softened against a robust dollar.
Investors in Latin America's top economy scaled back bets across asset classes, with the effect seen most clearly on banking stocks, as signs emerged the path to much-anticipated pension reform may not be traversed as quickly as hoped.
A spokesman for President Jair Bolsonaro, who is recovering in hospital from a follow-up procedure after being stabbed on the campaign trail last year, said analysis of pension reform proposals will depend on the right-wing politician's health.
A local trader said the prospect of a delay in the pension overhaul approval process was enough for traders to lock in some profits made during a strong start to 2019. The benchmark had gained about 11.9 percent in the year through Tuesday.
MSCI's Latin American stocks index fell 3.1 percent in its worst one-day showing in nearly two months. Its index of Latin American currencies shed 0.4 percent, weighed down by a 0.8 percent slide in Brazil's real .
Sao Paulo-traded stocks saw their worst day in more than eight months, clocking a 3.7 percent loss as they distanced themselves further from Monday's record closing high.
A generally positive report by ratings agency Moody's on the future of Brazil's state banks was insufficient to stop lender Banco do Brasil from being swept up in the broad-based carnage as it shed 6.1 percent.
Mining giant Vale SA dropped 4.9 percent after the state of Minas Gerais suspended the operational license of the Jangada mine, the firm said in a filing.
The suspension piles more misery on Vale, coming on the heels of the miner declaring force majeure on some contracts on Tuesday in the wake of a deadly dam burst at a mine last month.
Brazil's central bank's monetary policy committee voted unanimously to leave borrowing costs at a record low 6.5 percent, as predicted by all 28 economists in a Reuters poll, and signaled relatively muted inflationary pressures could keep rates where they are for some time.
Yields on local 10-year Brazilian bonds jumped to pierce the 9 percent mark during trade then retreated marginally to trade around 8.93 percent.
The profit-taking trend spilled over into neighbouring Argentina, where stocks fell 2 percent to snap a seven-session winning run. The peso weakened the most in a little over a week.
Mexican stocks fell 1.1 percent, with every materials stock on the index declining.
The country's mining undersecretary said the government has more than 5,000 mining concessions under review that could be canceled in case anomalies are found.
The Mexican peso dipped 0.2 percent, a day ahead of a central bank rate meeting.
Christian Lawrence, a senior market strategist with Rabobank, said in a note he expects the policy rate to remain at 8.25 percent, despite overnight index swaps pricing in a 27 percent chance of a 25-basis point hike.
Key Latin American stock indexes and currencies at 2134 GMT Stock indexes daily % Latest change MSCI Emerging Markets 1048.46 -0.33 MSCI LatAm 2867.88 -3.07 Brazil Bovespa 94635.57 -3.74 Mexico IPC 43855.79 -1.09 Chile IPSA 5426.51 -0.73 Argentina MerVal 36731.67 -1.97 Colombia IGBC 12071.73 -0.43 Currencies daily % change Latest Brazil real 3.6985 0.15 Mexico peso 19.0707 -0.22 Chile peso 654.45 -0.53 Colombia peso 3104 0.10 Peru sol 3.32 0.12 Argentina peso (interbank) 37.5200 -0.77 (Reporting by Aaron Saldanha in Bengaluru and Paula Arend Laier in Sao Paulo Editing by James Dalgleish)