*

Latam FX up 0.3%, stocks down 1.6%

*

Poll: Chile central bank to cut rates by 25 bps in

December

*

Mexico's October industrial output down 2.2% year over

year

(Updates to afternoon trading)

By Pranav Kashyap and Johann M Cherian

Dec 12 (Reuters) - Brazil's real gave up early gains as

investors weighed the implications of fiscal imbalances in the

country a day after a surprise interest-rate hike by the central

bank, while also awaiting a policy decision in Peru.

The real's weakness intensified and was last down 0.7% at

5.99 to the U.S. dollar, after presidential spokesperson Paulo

Pimenta said President Luiz Inacio Lula da Silva will run for

reelection in 2026.

Analysts say Lula's excessive spending plans have fueled

inflationary pressures, the driver behind the central bank's

latest tightening cycle. On Wednesday the institution raised

rates by one percentage point, when most others have been

cutting rates.

The real has seen the sharpest declines among major

currencies in the region this year, trading near an all-time

low, while Brazil's main stock index Bovespa is also on

track for an annual drop.

Lula is recovering from surgery, fueling speculation about

his viability as a presidential candidate in the next election.

"While aggressive rate hikes can offer near-term support to

the currency, the Brazilian real will weaken and underperform

over the longer term," said Brendan McKenna, international

economist and FX strategist at Wells Fargo.

"Fiscal policy will be the driving force of Brazilian real

depreciation."

On Thursday, the Bovespa index slid 1.2%, weighed down by

consumer discretionary stocks.

More broadly, MSCI's index for Latin American currencies

edged up 0.3%, while the stocks index

lost 1.6%.

Later in the day, Peru's central bank is expected to

announce an interest-rate decision, ahead of which the sol

slipped 0.3%. Local equities dipped 0.2%.

Copper-producer Chile's peso edged down 0.3% tracking

weak prices of the red metal. A poll showed traders

expect Chile's central bank to trim borrowing costs at its

meeting next week.

Mexico's peso dropped 0.5%. Data revealed a 1.2%

decline in industrial output for October compared to September.

The year-over-year figures showed a 2.2% decrease.

The Colombian peso edged up 0.16% in light trading

volumes. This followed a decision by lawmakers on Wednesday to

reject a crucial tax reform.

The reform was deemed essential by President Gustavo Petro's

government to finance the 2025 budget, especially after recent

budget cuts were necessitated by a lower-than-expected tax

revenue for the current year.

Colombian stocks were flat, while Argentina's

Merval index edged up 0.5%. A poll showed analysts

expect Argentina's economy to have contracted 2.6% in the third

quarter of 2024 versus a year earlier.

Key Latin American stock indexes and currencies:

Latin American market

prices from Reuters

Equities Latest Daily %

change

MSCI Emerging Markets 1112.73 0.39

MSCI LatAm 2008.26 -1.63

Brazil Bovespa 126424.21 -1.1

Mexico IPC 51284.21 -0.18

Chile IPSA 6781.04 0.73

Argentina Merval 2304089.5 0.565

7

Colombia COLCAP 1384.47 0.08

Currencies Latest Daily %

change

Brazil real 5.9975 -0.73

Mexico peso 20.211 -0.5

Chile peso 977.37 -0.3

Colombia peso 4342.51 -0.16

Peru sol 3.737 -0.3

Argentina peso (interbank) 1018 -0.05

Argentina peso (parallel) 1075 0.46