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EMERGING MARKETS-Mexican peso leads gains among Latam FX

Shreyashi Sanyal

(Adds comments, updates prices throughout) By Shreyashi Sanyal May 14 (Reuters) - The Mexican peso jumped on Thursday as an interest rate cut from the country's central bank helped reassure investors of financial stability in Latin America's second-biggest economy. The Bank of Mexico or Banxico, as it is known, cut its benchmark interest rate to the lowest in 3-1/2 years and hinted more cuts could be on the horizon. The peso gained 1.8% against the dollar following the expected rate cut, with analysts seeing the move as a positive for the economy. "It also included an intriguing reference to the 'room for maneuver' of monetary policy – seemingly hinting at a trade-off between shoring up activity, and supporting the peso and financial stability," said Edward Glossop, Latin America economist at Capital Economics. "There is further scope for Banxico to trim interest rates without risking pressure on the peso and triggering capital outflows. Risk appetite appears to have returned." However, Banxico also warned the coronavirus pandemic's effects will be felt more strongly in the second quarter. Brazil's real erased early losses to trade flat. Data showed nearly 189,000 total COVID-19 cases in Brazil, making it the sixth-worst-hit by the outbreak. Criticism against President Jair Bolsonaro has been rising as he pushes against social distancing protocols. The government on Wednesday cut Brazil's 2020 GDP forecast to a contraction of 4.7% from 0%. U.S.-China trade tensions also rose after U.S. President Donald Trump on Thursday said he was very disappointed in China over its failure to contain the virus outbreak, and that the pandemic cast a pall over his trade deal with Beijing. The World Health Organization on Wednesday said the coronavirus could become an endemic like HIV and may be here to stay. "We don't expect an all-out trade war to resume. Yet a shift in political rhetoric and other actions could reinforce the shift in risk appetite," said Mark McCormick, global head of FX strategy at TD Securities. Falling copper prices pushed the Chilean peso off 10-week highs, after the country on Wednesday announced a general quarantine for greater Santiago to control a sharp resurgence of coronavirus cases in the capital. The Colombian peso was set for its biggest percentage fall in two weeks. A Reuters poll showed the local economy may have marked its last quarter of expansion in the first quarter before it enters a recession. The data is due on Friday. Argentina's black market peso weakened to 136 per U.S. dollar, traders said, widening its gap with the official foreign exchange rate to more than 100% as the country negotiates a restructuring of its sovereign bonds. Key Latin American stock indexes and currencies at 2022 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 900.87 -0.92 MSCI LatAm 1544.01 1.13 Brazil Bovespa 79010.81 1.59 Mexico IPC 36112.81 -0.77 Chile IPSA 3642.89 1.05 Argentina MerVal 39225.67 3.654 Colombia COLCAP 1052.23 -0.29 Currencies Latest Daily % change Brazil real 5.8175 0.01 Mexico peso 23.8330 1.54 Chile peso 821.1 -0.43 Colombia peso 3932.68 -0.76 Peru sol 3.4478 -0.26 Argentina peso 67.6300 -0.12 (interbank) (Reporting by Shreyashi Sanyal and Susan Mathew in Bengaluru; Editing by Lisa Shumaker and Dan Grebler)