* Brazilian assets drop after report links Flavio

Bolsonaro to Master's Vorcaro

* MSCI LatAm FX down 1.1%, stocks fall 2.2%

* Brazil to subsidize gas prices as tax cut plan stalls

* S&P revises Mexico's outlook to negative from stable

(Updates with afternoon trading levels)

By Johann M Cherian, Avinash P and Purvi Agarwal

May 13 (Reuters) - Brazilian assets slid on Wednesday,

with the real leading declines among Latin American currencies

as investors assessed a report linking right-wing Presidential

candidate Flavio Bolsonaro to Daniel Vorcaro, the jailed former

owner of liquidated Banco Master.

The real depreciated 2.2% to 5 per dollar and was

headed for its weakest daily performance in nearly two months,

while stocks fell 1.8% dragged down by a 2.6% slump in

Petrobras.

The Intercept Brasilreportedthat Flavio negotiated with

Vorcaro to finance a film about the life of his father, former

president Jair Bolsonaro, at a time Banco Master was being

investigated for a liquidity crisis and violations of financial

system rules.

Brazil is facing several economic challenges under the

current administration, including high borrowing costs and

concerns over deteriorating public finances. Latest polls show a

tight race between President Luiz Inacio Lula da Silva and

Senator Flavio Bolsonaro ahead of this year's pivotal

presidential election.

On Wednesday, the government also announced a direct subsidy

for gasoline prices, though it said the measure would be

fiscally neutral.

Meanwhile, investors also sold local currency bonds, sending

the yield on the 10-year local currency bond up 34

basis points to a more than one-month high.

The real is the best performing currency in the region this

year, as analysts pointed to the country benefiting from

positive terms of trade and higher oil prices due to Middle East

tensions.

"The move up toward 5 (real per dollar) in that sense is far

from catastrophic. A cheapening of a prior rich currency is

always a risk factor when it has been stretched away from fair

value," said Padhraic Garvey, regional head of research,

Americas, Head of Global Rates and Debt Strategy at ING.

Garvey sees the real at fair value of 5.25 per dollar.

Regional currencies came broadly under pressure as the U.S.

dollar appreciated, with investors pricing in hawkish Federal

Reserve monetary policy after data showed producer prices posted

their biggest gain since early 2022.

MSCI's gauge tracking regional currencies

weakened 1.1%, while the stocks index declined

2.2%.

The Colombian government auctioned off 6 trillion pesos

($1.6 billion) in domestic TES government bonds in the largest

auction in the country's history, according to market sources.

The local peso dipped 0.4%, to hit its weakest level

in over two months.

Focus shifted to a meeting between the Chinese and U.S.

presidents as market participantsalso weighed the prospect of a

peace deal between Tehran and Washington.

Bucking the trend, Chile's peso rose 0.9%, leading

gains in the region, as copper prices hit their highest since

January 29, supporting the copper-exporting nation. Stocks

, however, fell 2%, the steepest drop among regional

equities.

Mexico's peso and stocks rose 0.22% each.

Credit ratings agency S&P on Tuesday revised Mexico's

outlook to "negative" from "stable", citing the risk of very

slow fiscal consolidation that could lead to a

faster-than-expected buildup in government debt and a higher

interest burden.

Elsewhere, many of Ukraine's bonds traded around record

highs, after rallying earlier in the week. Russian President

Vladimir Putin had said over the weekend he thought the Ukraine

war was coming to an end.

Key Latin American stock indexes and currencies:

Latin American market

prices from Reuters

Equities Latest Daily %

change

MSCI Emerging Markets 1704.68 0.34

MSCI LatAm 3090.83 -2.11

Brazil Bovespa 177191.43 -1.75

Mexico IPC 70189.08 0.22

Chile IPSA 10425.31 -2.02

Argentina Merval 2737460.8 -1.99

Colombia COLCAP 2078.38 -0.49

Currencies Latest Daily %

change

Brazil real 5.0026 -2.24

Mexico peso 17.1794 0.22

Chile peso 887.44 0.96

Colombia peso 3779.54 -0.45

Peru sol 3.4173 0.43

Argentina peso (interbank) 1391.5 -0.40

Argentina peso (parallel) 1400 1.07

(Reporting by Purvi Agarwal, Johann M Cherian, Avinash P

additional reporting by Shashwat Chauhan in Bengaluru; editing

by Barbara Lewis and Diti Pyhara)