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EMERGING MARKETS-Mexican peso steers Latam FX lower, virus woes remain

Shreyashi Sanyal

* IMF says more global growth forecasts cuts "very likely" * Expectations of Banxico rate cut rises * China announces new tariff waivers for some U.S. imports (Adds comments, updates prices) By Shreyashi Sanyal May 12 (Reuters) - The Mexican peso led declines among its Latin American counterparts on Tuesday, after fresh data highlighted the pain inflicted by global lockdowns, while worries of a potential second wave of new infections persisted. The number of new cases in countries such as Mexico, Russia and Brazil remained worryingly high but risk appetite in the past week was supported by the gradual reopening of the certain economies in Asia, Europe and parts of the United States. Mexico's peso dropped 1.5% against the dollar as data showed industrial output fell in March from February and was 5% lower year-over-year. All eyes will now be on the Mexican central bank's policy meeting on Thursday. "The breakdown of the March data showed broad-based weakness, with mining, utilities and manufacturing all contracting on the month," emerging markets economists at Capital Economics wrote. "The government remains seemingly reluctant to loosen fiscal policy aggressively, so Banxico will continue to do the heavy lifting. There is a high chance of a 100bp cut at its meeting on Thursday." The dollar dropped after the World Health Organization said it was focusing on some treatments that appeared to be limiting the severity or length of COVID-19, the respiratory illness caused by the novel coronavirus. Meanwhile, China announced a new list of 79 U.S. products including ores of rare earth metals, gold ores and silver ores for waivers from retaliatory tariffs, amid continued pressure on Beijing to boost imports from the United States. Brazil's real reversed earlier gains to fall 0.9%, while the Colombian and Chilean pesos, firmed 0.4% and 0.1% respectively. As uncertainties rise, analysts warn of deteriorating risk appetite. International Monetary Fund Managing Director Kristalina Georgieva said it was "very likely" the Fund would cut global growth forecasts further as the coronavirus pandemic was hitting many economies harder than previously projected. "We are skeptical that within the next few months we will witness substantial capital inflows into emerging market assets and because of that the EM currencies will struggle to gain a sustainable bullish momentum against the U.S. dollar," Rabobank FX strategists Jane Foley and Piotr Matys wrote. Sentiment was further dulled by signs of a second wave of the coronavirus pandemic after China, South Korea and Germany reported a spike in the number of new cases. Fears grew that recently re-opened economies may be forced back into lockdowns, thus deepening the economic damage. Latin American central banks have been revising down expectations for economic growth, with Chile being the latest. The world's top copper producer's economy is expected to shrink 7.2% in the second quarter. Brazil, one of the emerging market countries hardest hit by the pandemic, registered 5,632 new coronavirus cases on Monday, taking its total tally to 168,331. Some have criticized President Jair Bolsonaro for a lax attitude towards the outbreak. Data on Tuesday showed services activity in Brazil marked its biggest monthly fall on record due to the pandemic. Key Latin American stock indexes and currencies at 2007 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 908.12 -0.85 MSCI LatAm 1559.28 -2.36 Brazil Bovespa 78161.27 -1.14 Mexico IPC 37524.70 -0.28 Chile IPSA 3734.28 -2.03 Argentina MerVal 39328.61 1.936 Colombia COLCAP 1089.29 -1.34 Currencies Latest Daily % change Brazil real 5.8751 -0.18 Mexico peso 24.2580 -1.39 Chile peso 822.5 0.16 Colombia peso 3883.75 0.10 Peru sol 3.4328 -0.53 Argentina peso (interbank) 67.4500 -0.12 (Reporting by Shreyashi Sanyal and Susan Mathew in Bengaluru Editing by Paul Simao and Marguerita Choy)