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Fed keeps rates on hold, sees no rush to cut

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Brazil's central bank hikes rates by 100 basis points

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Preliminary data shows Mexico's economy shrank in fourth quarter

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MSCI's Latin American currencies flat, stocks jump 2%

By Purvi Agarwal

Jan 30 (Reuters) - Latin American currencies were mixed against the dollar on Thursday, a day after the U.S. Federal Reserve said it saw no rush to cut interest rates, while the Brazilian real weakened after the South American country's central bank hiked rates.

MSCI's index tracking Latin American currencies was flat, but its stocks index was up 2%, hitting more than a one-month high.

The real weakened 0.5%, set for its worst day in nearly two weeks, a day after the Brazilian central bank hiked rates by 100 basis points and signaled another hike of that size in March.

The central bank's policymakers highlighted concerns over inflation, resilient economic growth and labor market pressures to justify tighter monetary policy.

The unanimous decision was the first under new chief Gabriel Galipolo, who was appointed by President Luiz Inacio Lula da Silva. The leftist president backed Wednesday's rate hike.

"There's a lot of uncertainty about the trajectory for fiscal policy in Brazil and how much the government can do to improve things on the domestic front and to appease investors. That's part of what's keeping Brazil an underperformer," said Tettey Addy, emerging markets economic analyst at abrdn.

"The fiscal policy is pressuring the Brazilian central bank to act in the way it is... the high interest rates are symptomatic of the concerns that investors have about Lula's policy."

On Wednesday, the U.S. central bank held its benchmark interest rate steady, and Fed Chair Jerome Powell said there would be no rush to cut it again until inflation and jobs data made it appropriate.

The potentially inflationary impact of President Donald Trump's policy plans, in part, has prompted markets to dial back expectations of U.S. rate cuts in 2025. Coupled with tariff threats, it has pressured demand for most risky emerging market assets.

Investors are watching assets in tariff-exposed economies such as Canada and Mexico ahead of Feb. 1, the date that Trump has said could mark the announcement of the tariffs. The Mexican peso was up 0.4% on Thursday.

Preliminary data on Thursday showed the Mexican economy shrank more than expected in the fourth quarter on a sequential basis, marking its first quarter-on-quarter contraction in over three years.

Meanwhile, regional stock markets rose broadly, with Argentina's Merval and Brazil's Bovespa each jumping 1.7%. The Mexican stock index gained 0.9%.

The currency in Colombia was flat, while Chile's was up 0.3%.

Meanwhile, El Salvador's Congress on Wednesday swiftly approved a bill by President Nayib Bukele to amend its bitcoin law to comply with a deal with the International Monetary Fund to make acceptance of the cryptocurrency voluntary.

Highlights:

** Peru's dollar mountain lets sol currency shine among Latam peers

** Poland's GDP growth was 3.1% in Q4 2024, PM says

** Brazil steps up formal job creation in 2024 despite unexpected December slump

Key Latin American stock indexes and currencies:

Equities Latest Daily %

change

MSCI Emerging Markets 1093.75 0.13

MSCI LatAm 2031.97 1.98

Brazil Bovespa 125579.17 1.74

Mexico IPC 52038.15 0.94

Chile IPSA 7197.28 1.53

Argentina Merval 2587797.4 1.67

9

Colombia COLCAP 1531.17 1.41

Currencies Latest Daily %

change

Brazil real 5.8838 -0.47

Mexico peso 20.4061 0.43

Chile peso 987 0.3

Colombia peso 4165.26 -0.02

Peru sol 3.7095 0.12

Argentina peso (interbank) 1051.5 0

Argentina peso (parallel) 1205 1.24