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LATAM FX steady, stocks down 0.5%

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Mexico's headline inflation rises

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Ukraine bonds slip as tensions escalate

(Updates with mid-session prices)

By Nikhil Sharma and Purvi Agarwal

May 22 (Reuters) - Latin American currencies broadly

strengthened against the dollar on Thursday, as investors

assessed the implications of mounting U.S. fiscal debt, while

stocks were weighed down by commodity prices.

Trepidation over America's ballooning national debt

intensified as the U.S. House of Representatives passed

President Donald Trump's tax and spending overhaul, a bill

anticipated to significantly increase the country's debt burden.

This mounting fiscal pressure was a key catalyst behind

Moody's decision last week to strip the U.S. of its top-tier

credit rating.

Investors, already skittish from Trump's unpredictable

tariff pronouncements, are trimming exposure to U.S. assets in a

bid to cultivate more geographically diversified portfolios and

piling into EM assets.

"Latam currencies are not a speculative assets. The

confidence right now is momentary because we have seen recent

weakness in the dollar, but due to political problems that we

have in the region, the competency will not maintain for the

long term," said Julian Pineda, market analyst at StoneX.

On the day, the Argentinian peso was up 1%

against the dollar.

The country is easing foreign currency reporting rules to

encourage residents to start using an estimated $271 billion in

cash dollars, long held as a hedge against economic turmoil.

Mexico's peso ticked up 0.2% after the country's

headline inflation rose more than expected in the first half of

May, data showed, jumping outside the central bank's target

range for the first time this year.

Separate data revealed the economy shrank 0.4% in March from

February, while expanding 2.5% from March of 2024.

These indicators throw a wrench into the Bank of Mexico's

monetary easing ambitions. The central bank, having last week

delivered a 50-basis-point cut to its benchmark rate and hinted

at further reductions, now faces a delicate balancing act.

"Today's data should be neutral for policy, especially

considering that the next Banxico decision is over a month from

now... we keep our expectation of a 50bp cut in that meeting,"

said analysts at Deutsche Bank.

Currencies in Chile and Peru strengthened 0.1%

and 0.5%, respectively, against the greenback, despite a dip in

copper prices.

The Colombian peso slipped 0.3% as oil prices fell on

global supply risks following a report that OPEC+ is discussing

a production increase for July.

Brazil's real slipped 0.2%. A government report

highlighted the need to contain 31.3 billion reais ($5.58

billion) in this year's budget to comply with the country's

fiscal rules.

The country's central bank, which hiked rates earlier this

month without providing any forward guidance, stressed the need

for stable inflation before it could halt its policy tightening

cycle.

Among stocks, ones in Mexico fell 1.3%, with

Walmart's Mexico unit down 2% and bottle maker FEMSA

off 1.9%. Miner Grupo Mexico shed

1%.

Colombia's stock index dipped 0.8%, while

heavyweight Brazilian equities were down 0.3% with

energy and mining constituents bearing the brunt of the

sell-off.

MSCI's gauge for regional equities extended

its slide from the prior session, shedding 0.5%.

Revenue from commodity exports such as copper, iron ore,

crude oil and agricultural products is a key income for Latin

American economies.

Elsewhere, Ukraine's bonds with 2035 and

2036 maturity fell more than 1 cent to the

dollar as tension with Russia escalated after Moscow said it had

shot down 105 Ukrainian drones over Russian regions, including

dozens heading towards Moscow.

Key Latin American stock indexes and currencies:

Latin American market

prices from Reuters

Equities Latest Daily %

change

MSCI Emerging Markets 1165.06 -0.81

MSCI LatAm 2244.85 -0.51

Brazil Bovespa 137419.91 -0.33

Mexico IPC 57833.4 -1.25

Chile IPSA 8361.85 -0.67

Argentina Merval 2314477.8 -0.22

2

Colombia COLCAP 1636.09 -0.81

Currencies Latest Daily %

change

Brazil real 5.6576 -0.23

Mexico peso 19.3045 0.24

Chile peso 942.26 0.13

Colombia peso 4176.5 -0.28

Peru sol 3.658 0.54

Argentina peso (interbank) 1135.5 0.97

Argentina peso (parallel) 1145 2.62