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EMERGING MARKETS-Latam stocks fall on U.S. budget worries

MEXICO CITY, Oct 3 (Reuters) - Latin American stocks fell on

Thursday as investors worried about the U.S. budget stalemate,

while concerns from a Wall Street agency about Brazil's debt

rating hung over that country's market.

Stocks in both Brazil and Mexico have slumped off recent

highs and could fall further if feuding U.S. lawmakers fail to

make progress on raising the government's borrowing limit this

month, which could trigger an unprecedented U.S. debt default.

* Brazil's benchmark Bovespa stock index shed 1.15

percent as state oil firm Petroleo Brasileiro SA,

fell 1.28 percent and iron miner Vale shed 1.16


* Analysts said investors had largely expected a decision by

Moody's Investor Service late on Wednesday to lower its outlook

on Brazil's sovereign debt rating to "stable" from "positive."

Latin America's largest economy is struggling with the impact of

three years of low growth and swelling debt.

* Preferred shares of Oi tumbled 13.29, erasing

gains in the prior session when it announced a merger with

Portugal Telecom SGPS SA. Investors turned skeptical the

combined company will deliver more than $2.5 billion in cost

savings, analysts said.

* Mexico's IPC stock index shed 1.11 percent as

bottler and convenience store operator Femsa lost 2

percent and conglomerate Alfa lost 2.2 percent.

* Top retailer Wal-Mart de Mexico lost 2.02

percent ahead of the release of its September sales data, where

the firm was expected to post its third monthly drop in a row

after massive flooding hurt sales. The firm has seen a drop in

sales as the economy slows and it faces steeper competition.

Latin America's key stock indexes at 2130 GMT:

Stock indexes daily % YTD %

Latest change change

MSCI LatAm 3,335.12 -0.99 -12.18

Brazil Bovespa 52,489.86 -1.15 -13.88

Mexico IPC 40,841.13 -1.11 -6.55

Chile IPSA 3,826.61 0.13 -11.04

Chile IGPA 18,826.34 0.08 -10.65

Argentina MerVal 4,866.55 -0.06 70.50

Colombia IGBC 14,060.73 -0.22 -4.45

Peru IGRA 15,648.19 -1.07 -24.15

Venezuela IBC 1,747,056.41 -2.13 270.58