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EMERGING MARKETS-Pre-Fed jitters, local political worries drag on Bovespa

SAO PAULO, June 13 (Reuters) - Brazil's benchmark Bovespa index dropped on Wednesday under the weight of local political uncertainty and ahead of a U.S. Federal Reserve decision on interest rates this afternoon that added to market jitters.

In recent weeks in Brazil traders have grown increasingly spooked by the nation's October presidential election, in which no moderate, market-friendly candidate is gaining traction. Additionally, the overall weakness of the current government and expected cuts to the country's gross domestic product forecast have dampened moods.

With the lack of any significant positive triggers combined with the anxiety as the Federal Open Market Committee meets, the Bovespa slid 0.71 percent in late-morning trade, paring losses after dropping over 1 percent earlier in the day.

The Fed is virtually guaranteed to raise interest rates at its two-day meeting this week, but investors want to see how the U.S. central bank characterizes its monetary policy as borrowing costs return to more normal levels amid an ongoing economic expansion.

"Attention is focused on the FOMC," said Vitor Suzaki, an analyst at Sao Paulo-based Lerosa Investimentos.

While losses were fairly evenly spread, the biggest loser was food processor BRF SA, which fell 4.6 percent after the company said was it was shutting a turkey plant due to export restrictions.

Among the biggest gainers was state electricity company Centrais Eletricas Brasileiras SA, known as Eletrobras, which climbed 2.5 percent after reports that the government was prioritizing the sale of six distribution units, despite an increasingly hostile political environment.

The president of state development BNDES said on Wednesday the government would publish the framework for an auction of the units on Friday.

In currency markets, Argentina's peso was the big mover as the country's central bank pledged to sell $7.5 billion on the spot market.

The peso climbed 1.18 percent in morning trade.

Key Latin American stock indexes and currencies at 1441 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1135.35 -0.46 -1.54 MSCI LatAm 2489.34 -0.55 -11.49 Brazil Bovespa 72238.00 -0.71 -5.45 Mexico IPC 46638.52 -0.05 -5.50 Chile IPSA 5538.58 -0.1 -0.47 Chile IGPA 27996.24 -0.08 0.06 Argentina MerVal 30160.14 -1.92 0.31 Colombia IGBC 12270.82 0 7.92 Venezuela IBC 42400.26 1.38 3256.73 Currencies daily % YTD % change change Latest Brazil real 3.7129 -0.16 -10.76 Mexico peso 20.6695 0.26 -4.70 Chile peso 635.6 0.09 -3.30 Colombia peso 2858.45 0.10 4.32 Peru sol 3.267 0.12 -0.92 Argentina peso 25.4500 1.18 -26.92 (interbank) Argentina peso 26.25 -0.57 -26.74 (parallel) (Reporting by Gram Slattery and Paula Arend Laier; Additional reporting by Caroline Stauffer in Buenos Aires Editing by Jeffrey Benkoe)