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EMERGING MARKETS-Mexican peso, real up as Saudi output seen rebounding

By Sruthi Shankar

(Updates throughout) By Sruthi Shankar Sept 17 (Reuters) - Brazil's real turned positive and the Mexican peso hit a session high on Tuesday after Saudi Arabia's energy minister said the kingdom will restore its lost oil output by the end of September after a weekend attack disrupted 5% of global output. In response, oil prices slumped about 7%, while main stock markets in Brazil and Mexico rose sharply as the latest news eased worries about a supply shock in oil markets hurting global growth. Oil prices surged 20% at one point on Monday, prompting investors to flee riskier assets but helped stocks in Colombia, whose top export is oil. The Colombia SE General index was back down 0.3%, while the country's currency weakened 0.6% against the dollar. Saudi Energy Minister Prince Abdulaziz bin Salman said on Tuesday the kingdom had managed to restore oil supplies to the levels where they were prior to the weekend attacks by drawing from oil inventories. The Brazilian real traded up 0.07% at 4.0765 per dollar, while Mexico's peso strengthened by as much as 0.47% to trade at 19.3489 per dollar. However, currencies moved in tight ranges ahead of the U.S. Federal Reserve's two-day policy meeting set to conclude on Wednesday. The central bank is expected to cut interest rates for the second time this year. Focus was also on Brazil's central bank meeting this week. Officials are widely expected to cut record-low rates by 50 basis points in order to shore up Latin America's largest economy. "Low inflation, subdued activity and continued fiscal consolidation progress bode well for a 50bp policy rate cut this week," Gustavo Rangel, chief economist, Latam at ING said in a note. "An additional 50bp cut that brings the SELIC rate (overnight rate) to 5% in October is also likely, but we expect a mid-cycle pause after that." Brazil's Bovepsa gained 0.7% as banking shares jumped. Airlines such as Gol Linhas Aereas Inteligentes and Azul SA, which took a hit on Monday on worries about higher fuel costs, rose 5.8% and 3.5% respectively. The MSCI's index of Latin American stocks jumped 0.7%. Latin American stock indexes and currencies at 2006 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1020.19 -0.67 MSCI LatAm 2726.90 0.65 Brazil Bovespa 104408.36 0.7 Mexico IPC 43447.93 1.42 Chile IPSA 5072.93 0.06 Argentina MerVal 30114.29 -1.463 Colombia IGBC 12978.77 -0.3 Currencies Latest Daily % change Brazil real 4.0765 0.07 Mexico peso 19.3756 0.33 Chile peso 713.55 -0.60 Colombia peso 3382.1 -0.59 Peru sol 3.338 -0.15 Argentina peso (interbank) 56.4900 -0.37 (Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; Editing by Dan Grebler)