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EMERGING MARKETS-Latam stocks, FX slide on U.S. interest rate hike fears

·3 min read

* Brazil 2022 GDP growth now forecast at 2.7%, up from 2% * Argentina inflation nears 80% * Latam stocks fall to one-week lows (Updates prices, add Peru details) By Amruta Khandekar Sept 15 (Reuters) - Most Latin American currencies extended losses to a third straight day on Thursday, as expectations of a sharp rate hike from the U.S. Federal Reserve boosted the dollar and raised growth slowdown worries. Brazil's real led declines among currencies, falling 1.2%, even as its economic ministry upgraded its forecast for economic growth this year to 2.7% from 2%, and as data showed economic activity rose much higher than expected in July. "We expect a recession in the euro zone and low growth of investment in the U.S. That will affect Latin America, which is strongly trade related to the U.S.," said Manfred Stamer, senior economist at Allianz Trade. "But we do not see major Latam countries going into recession." Latin America's largest economy saw seasonally-adjusted 1.17% growth in economic activity from June, compared with a forecast of 0.3% in a Reuters poll of economists. The real has been volatile ahead of October elections, but has outperformed all of its regional peers so far this year. Also weighing on resource-rich Latam assets on Thursday was a sharp drop in oil prices, which slumped on concerns about the impact to demand during a potential economic growth slowdown. Prices of copper and most other metals also slipped on slowdown fears. The Chilean peso and the Mexican peso fell about 0.5% against the dollar, while the Peruvian sol was down nearly 1%. Peru's economic growth rate slowed sharply in July, expanding only 1.41% - the slowest pace since the country lifted pandemic-related restrictions last year - amid a slowdown in its critically important mining sector, data showed on Thursday. The dollar found support as data showing rising inflation and signs of strength in the economy firmed the case for the Fed this week to stay hawkish and deliver its third 75 basis points interest rate hike. Latam stocks fell 1.5% to one-week lows, also on track for a third day of losses. Higher commodity prices supported Latam currencies during the early part of the year, but investors have been moving toward safer assets such as the dollar on bets of an increasingly hawkish Fed and fears of a recession. Meanwhile, Argentina's monthly inflation blew past forecasts at 7% in August and soared to nearly 80% from a year earlier, a government agency reported on Wednesday. Key Latin American stock indexes and currencies at 1901 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 957.24 -0.55 MSCI LatAm 2137.59 -1.58 Brazil Bovespa 110015.36 -0.48 Mexico IPC 46774.30 0.06 Chile IPSA 5522.92 -1.54 Argentina MerVal 144895.56 -1.264 Colombia COLCAP 1210.15 -0.71 Currencies Latest Daily % change Brazil real 5.2385 -1.20 Mexico peso 20.0791 -0.68 Chile peso 927.5 -0.82 Colombia peso 4412.8 -0.62 Peru sol 3.8767 -1.15 Argentina peso 143.1800 -0.21 (interbank) (Reporting by Amruta Khandekar, Anisha Sircar and Susan Mathew in Bengaluru; Editing by Nick Zieminski and Bill Berkrot)