*

Fiscal deficit to shrink with higher revenues, lower

rates-

Brazil's Lula

*

Brazil services activity rises more than expected in April

*

Argentina loses appeal to overturn $1.7 bln bill in UK

securities case

*

Latam FX down 1.3%, stocks off 2.3%

By Ankika Biswas

June 12 (Reuters) - Latin American currencies reversed

their early course and dropped against the dollar on Wednesday,

with Brazil's real falling 1% on fiscal concerns, while

investors awaited the Fed's policy decision after

softer-than-expected U.S. inflation data.

Brazil's real fell 1% and the benchmark stock index

dropped 1.3%, with analysts noting disagreements on the

country's sources of revenue.

President Luiz Inacio Lula da Silva said Brazil's fiscal

deficit reduction will be achieved through increased revenues

and lower borrowing costs, without affecting public investments.

Citi analysts highlighted that the Senate's President on

Tuesday rejected the section of a provisional measure that

limited tax credits, which could raise tax collection by 29

billion real this year.

"BRL breached a resistance level of 5.29-per-dollar and

looks like it could head to 5.50," said Juan Perez, director of

trading at Monex.

"Brazil is facing finance/budget problems with disagreement

causing friction and exacerbating the negative image that Brazil

won't be able to meet fiscal targets or maintain a stable

situation."

Most Latam currencies traded higher in early trade as the

dollar was set for its steepest one-day fall this year. In a

relief for Fed policymakers, data showed U.S. consumer prices

were unexpectedly unchanged in May that saw traders ramp up

their bets of a September rate cut, putting pressure on the U.S

currency.

Focus now moves to the Federal Reserve's monetary policy

decision at 2 p.m. (1800 GMT). The Fed is widely expected to

hold rates steady, but markets will parse its statement and

updated forecasts for any clues on when first rate cuts might

come.

The MSCI index or Latam currencies dropped

1.3% to its lowest level since November, also dragged by a 1.8%

fall in the Mexican peso to 18.91-per-dollar.

Mexican markets have endured a period of volatility due to

concerns over proposed constitutional reforms that the ruling

party wants to implement after its thumping victory in national

elections.

"The headlines are motivating investors to reconsider their

long-standing justifications for the MXN's unstoppable

appreciation over the past three years," analysts at Credit

Agricole wrote. "We believe there is further downside in the

currency."

The Colombian peso slumped 0.8% to its lowest since

early December.

Meanwhile, Argentina lost an appeal in a London court to

reverse a ruling which had left it facing a 1.56-billion-euro

($1.67 billion) bill over GDP-linked securities, a blow to the

Latam economy that is facing an annual inflation of nearly 300%.

Bucking the trend, the currency of the world's top copper

producer, the Chilean peso rose 1%, boosted by strength

in the metal's prices.

The index for Latam stocks dropped 2.3%,

touching its lowest level since October.

Key Latin American stock indexes and currencies:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1070.39 0.44

MSCI LatAm 2165.17 -2.34

Brazil Bovespa 120068.94 -1.29

Mexico IPC 53231.43 0.18

Chile IPSA 6581.39 0.61

Argentina MerVal 0.00 0

Colombia COLCAP 1396.96 0.64

Currencies Latest Daily %

change

Brazil real 5.4115 -0.98

Mexico peso 18.9150 -1.82

Chile peso 913 1.00

Colombia peso 4022.46 -0.84

Peru sol 3.7604 0.00

Argentina peso (interbank) 902.0000 0.06

Argentina peso (parallel) 1275 1.57