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Latam FX up 0.44%; stocks slip 0.32%

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U.S. Federal Reserve rate decision due at 1400 ET

By Pranav Kashyap

Dec 18 (Reuters) - Brazil's real slipped on Wednesday,

continuing its decline as markets stayed cautious over the

progress of Brazil's fiscal package, while the rest of the Latin

America braced for a rate cut by the U.S. Federal Reserve later

in the day.

The real dropped 0.55% to 6.138 against the dollar,

after ending the previous day on a positive note, breaking a

three-day losing streak as the central bank's intervention in

the currency market helped stem some losses.

In a bid to further stabilize the currency, the central bank

will hold another auction in the current session, offering up to

15,000 traditional foreign exchange swap contracts.

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.

Meanwhile, global investors have their eyes on the Federal

Reserve as it gears up to announce its much-anticipated interest

rate decision at 1400 ET. While the market is largely predicting

a 25 basis-point cut, analysts foresee a more hawkish outlook

for 2025.

Traders are bracing for the central bank to potentially

raise its long-term interest rate projections. In response, U.S.

yields and the dollar have been on the rise. Overnight,

benchmark 10-year yields hit a one-month high,

peaking at around 4.4%, before settling slightly at 4.39%.

MSCI's index for Latin American currencies

was up 0.2%, after falling to near two-year lows on Tuesday.

Mexico's peso rose 0.26%, after data showed private

spending rose 1.1% during the third quarter compared to the

previous three-month period.

Mexico's central bank is expected to cut interest rates by

25 basis points on Thursday.

Chile's peso slipped 0.1%. Its central bank projects

economic growth between 1.5% and 2.5% for 2025 and 2026, after

an expansion of 2.3% this year, according to its December

monetary policy report. (IPoM).

The stocks index slipped 0.32%, with

Brazil's benchmark falling the most, down 1.04%

Key Latin American stock indexes and currencies:

Stock indexes Latest Daily % change

MSCI Emerging Markets 1097.13 0.36

MSCI LatAm 1939.21 -0.32

Brazil Bovespa 123405.45 -1.04

Mexico IPC 50241.55 -0.36

Chile IPSA 6735.26 0.07

Argentina MerVal 2592200.5 0

Colombia COLCAP 1373.82 0.45

Currencies Latest Daily % change

Brazil real 6.1385 -0.55

Mexico peso 20.115 0.26

Chile peso 987.53 -0.1

Colombia peso 4345.93 -0.07

Peru sol 3.732 -0.04

Argentina peso 1,021.5 -0.05

(interbank)

Argentina peso 1,170.0 -0.43

(parallel)

(Reporting by Pranav Kashyap in Bengaluru)