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Brazil's economy expanded 1.4% in Q2 vs 0.9% estimate

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Oil slumps 5%

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Colombia's peso hits four-week low

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Chile interest rate decision on deck

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Latam stocks down 1.1%, FX 0.3%

(Updated at 1930 GMT)

By Shashwat Chauhan and Lisa Pauline Mattackal

Sept 3 (Reuters) - Currencies of resources-rich Latin

American countries slid on Tuesday, as prices of commodities

such as copper and crude oil came under pressure with most

equity indexes clocking declines as well.

MSCI's index for Latin American currencies

slipped 0.3%, while a gauge for stocks was down

1.1%.

Meanwhile, Brazil's real pared its initial gains to

fall 0.5% against the dollar in volatile trading, tracking

declining iron ore prices.

The fall was despite data showing the Brazilian economy

surprised to the upside in the second quarter, increasing bets

on an imminent interest rate hike to curb inflationary pressure,

even as several brokerages hiked their expectations for economic

growth this year.

"The economy looks set to expand by around 3% over this year

as a whole, but this is above Brazil's potential rate and is

going to add fuel to the debate about whether Copom will raise

interest rates," said William Jackson, chief emerging markets

economist at Capital Economics.

A roughly 5% fall in oil prices also weighed on regional

currencies, as a report that a deal was imminent to resolve a

dispute that has halted Libyan production and exports pushed

crude prices to their lowest since around the beginning of the

year.

Additionally, worries about growth in China, and some

profit-taking as U.S. manufacturing data pointed to continued

subdued factory activity, weighed on the outlook for global

demand.

Oil producer Colombia's peso dropped 1% and Mexico's

peso fell 0.2%, both touching a four-week low against the

dollar.

Currencies of top copper producer Chile's peso and

Peru's sol eased 1.3% and 0.5%, respectively, as prices

of the red metal touched more than two-week lows.

Despite pointing to a weaker trend, most market participants

did not see the U.S. data prompting a larger than expected rate

cut from the Federal Reserve in September. Lower U.S. rates tend

to benefit riskier and higher-yielding emerging market assets.

"Recent public comments of Fed officials indicate few

currently see the need for a 50 bps reduction, we expect

Friday's jobs report will likely need to come in weaker than

July for such a large rate reduction to kick off the Fed easing

cycle," Wells Fargo analysts said.

Friday's all-important August non-farm payrolls report that

could offer more clues on the magnitude of September's expected

rate cut.

Investors also eyed an ongoing debate about a controversial

judicial reform in Mexico's Lower House of Congress.

Mexico's benchmark dropped 1.3% and Brazilian shares

dipped 0.3%, in tandem with a broad decline on Wall

Street.

An interest rate decision in Chile is expected later today,

with the central bank expected to ease benchmark rates to 5.50%.

Meanwhile, Brazil, the U.S. and other governments criticized

an arrest warrant issued for Venezuelan opposition leader

Edmundo Gonzalez.

HIGHLIGHTS

** Lebanon ex-central bank chief Riad Salameh arrested over

financial crimes

** Mexico July seasonally adjusted jobless rate 2.7%

** South African economy gains momentum but not as much as

forecast

** Ukraine's newly restructured bonds hold ground on first

day of trade

Key Latin American stock indexes and currencies:

MSCI Emerging Markets 1090.16 -0.56

MSCI LatAm 2209.56 -1.12

Brazil Bovespa 134507.04 -0.3

Mexico IPC 51802.21 -1.32

Chile IPSA 6380.05 -1.18

Argentina Merval 1750519.7 -0.246

4

Colombia COLCAP 1347.19 -0.59

Brazil real 5.6444 -0.48

Mexico peso 19.856 -0.22

Chile peso 928.67 -1.26

Colombia peso 4186.33 -1.03

Peru sol 3.7721 -0.5

Argentina peso (interbank) 953 0

Argentina peso (parallel) 1290 1.1627906

98