EMERGING MARKETS-Mexican peso heads toward 3-year high versus dollar

(Adds market analysts, updates prices) By Susan Mathew and Sruthi Shankar Jan 17 (Reuters) - The Mexican peso was heading toward a three-year high versus the dollar on Tuesday, and other Latin American currencies also rose as investors assessed weak U.S. economic data that could push the Federal Reserve to switch to smaller rate hikes. The peso, among the top performing EM currencies so far this year, rose 0.5% to 18.68 per dollar - its strongest level since February 2020. Bank of Mexico board member Jonathan Heath said he did not see any interest rate cuts happening in the next six months, in an interview with Bloomberg published Monday. "Several metrics such as the real-effective exchange rate are beginning to suggest that the Mexican peso is becoming relatively expensive," said analysts at Scotiabank. "We believe that an exchange rate move could be the catalyst for a rebound in investment as global bargain hunters swoop in." Broadly, stock markets and currencies in resource-rich Latin America rose as prices of commodities including oil and copper rallied on hopes that a shift in China's COVID-19 policy will boost consumption. Brazil's Bovespa climbed 1.9%, with oil major Petrobras and miner Vale driving gains. "We see the backdrop for EM assets turning more positive as EM rates peak, DM central banks pause, the U.S. dollar weakens and China reopens," strategists at BlackRock Investment Institute told clients. "By contrast, the damage of higher rates has yet to fully materialize in DM." Data earlier showed New York state manufacturing contracted sharply in January, pointing to continued weakness in national factory activity, hurt by the Fed's fastest interest rate hiking cycle since the 1980s. Brazil's real was up 0.8% against a broadly weakening dollar. Data showed inflation in Brazil as measured by the IGP-10 price index rose 0.05% in January, compared with a 0.36% gain in December. The real has made a volatile start to the year after a solid performance in 2022 on concerns about the new government's fiscal measures. Brazil's Finance Minister Fernando Haddad said on Monday it was "very realistic" to end this year with a primary budget deficit of 1% of gross domestic product. Chile's peso gained 0.8% to hover near seven-month highs, while Colombia's peso slipped about 0.9%. There is no need to further raise Colombia's benchmark interest rate - which is at a 23-year high of 12% - despite still-elevated inflation, the finance minister said. Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1028.17 -0.26 MSCI LatAm 2286.31 0.95 Brazil Bovespa 111229.84 1.85 Mexico IPC 53066.50 -1.05 Chile IPSA 5175.98 0.39 Argentina MerVal 258338.83 3.106 Colombia COLCAP 1333.98 -0.09 Currencies Latest Daily % change Brazil real 5.1046 0.82 Mexico peso 18.6840 0.47 Chile peso 815.4 0.80 Colombia peso 4724.94 -0.85 Peru sol 3.8148 0.08 Argentina peso (interbank) 182.4900 -0.16 (Reporting by Susan Mathew and Sruthi Shankar in Bengaluru; Editing by Alex Richardson and Grant McCool)