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Latam FX down 0.8%; stocks slip 2.7%

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U.S. Federal Reserve cuts rates as expected

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Brazilian real hits all-time low of over 6.2/dollar

(Updates after Fed rate decision)

By Shashwat Chauhan and Pranav Kashyap

Dec 18 (Reuters) - Most Latin American currencies

dropped on Wednesday after the Federal Reserve cut interest

rates as expected but signaled a slow pace of rate cuts next

year, with an already sliding Brazilian real tumbling to an

all-time low.

The dollar advanced globally after the Fed cut interest

rates by an expected 25-basis-points and signaled it will slow

the pace at which borrowing costs fall any further given a

relatively stable unemployment rate and little recent

improvement in inflation.

"When you include the forward guidance components, it

was a 'hawkish cut'," said Jack McIntyre, Portfolio Manager for

Brandywine Global.

"The Fed has entered a new phase of monetary policy, the

pause phase. The longer it persists, the more likely the markets

will have to equally price a rate hike versus a rate cut."

U.S. central bankers now project they will make just two

quarter-percentage-point rate reductions by the end of 2025.

Brazil's real plunged 2.2% to an all-time low of

6.2407 per the dollar, with selling pressure accelerating after

the Fed's decision.

In a bid to further stabilize the currency, Brazil's central

bank held spot U.S. dollar auctions for the third consecutive

session on Tuesday and reaffirmed its tough monetary policy

stance.

Brazil's lower house of Congress gave the green light to the

main text of a crucial fiscal bill late on Tuesday, a key

component of the government's proposed fiscal package.

However, lawmakers still need to vote on several amendments

to the main text, along with other related projects. Following

final approval, they would then be voted on by the Senate.

Brazilian assets, from stocks to bonds and its currency,

have found themselves in the crosshairs of investors, who have

been doubtful whether lawmakers would be able to pass the main

part of a fiscal bill aimed at putting government finances on a

more sustainable footing.

"The overall risk premium on Brazil is increasing and that's

clearly getting reflected in the sell-off of longer term bonds

and the real is reacting to the increase in that fiscal risk

premium," said Olga Yangol, managing director, head of emerging

markets research and strategy, Americas - Credit Agricole CIB.

Yangol also agreed that, with fiscal risk premiums

increasing, it could trigger credit rating agencies to put

Brazil under a microscope.

"In the case of Moody's, they were quite optimistic with

respect to Brazil... we could see ratings agencies kind of

revisiting that view," she added.

Mexico's peso dropped 0.5%, extending losses to a

third straight session, in-line with the dollar's strength

around the world.

Mexico's central bank is expected to cut interest rates

by 25 basis points on Thursday.

Colombia's peso shed 1% in light trading. Colombia's

central bank is widely expected to cut interest rates by 50-bps

later in the week.

Chile's peso slipped 0.7%. Overnight, Chile's

central bank

cut

its benchmark interest rate by 25 basis points to 5.0%.

MSCI's index for Latin American currencies

slipped 0.8%, while a gauge for stocks dropped

2.7%.

Brazil's benchmark index was an outlier, falling

2.4% to its lowest level in more than five months as losses in

financials and materials weighed.

Key Latin American stock indexes and currencies:

MSCI Emerging Markets 1093.96 0.07

MSCI LatAm 1893.19 -2.68

Brazil Bovespa 121724.45 -2.38

Mexico IPC 50460.52 0.08

Chile IPSA 6731.49 0.02

Argentina Merval 2575861.3 -0.63

8

Colombia COLCAP 1369.23 0.11

Brazil real 6.2407 -2.23

Mexico peso 20.2702 -0.51

Chile peso 993.28 -0.68

Colombia peso 4387.5 -1.02

Peru sol 3.732 -0.04

Argentina peso 1022 -0.10

(interbank)

Argentina peso (parallel) 1185 -1.69