*

Mexico gross fixed investment rises in April

*

Brazil's Haddad rules out currency transaction tax

*

Latam stocks off 0.8%, FX down 0.5%

(Updated at 3:10 p.m. ET/1710 GMT)

By Johann M Cherian and Shristi Achar A

July 2 (Reuters) - Concern around fiscal stability and

interest rates dominated markets across Latin America on

Tuesday, with Brazil's real dropping to over two-year lows.

MSCI's index tracking Latin American currencies

slid 0.5% against the dollar as markets focused

on comments by Federal Reserve Chair Jerome Powell that

cautioned against an imminent reduction of U.S. interest rates.

As the most influential central bank, the Fed's policy

trajectory often sets the tone for monetary policy for most

central banks across the world.

Brazil's real slipped 0.1%, hovering at 5.66 to the

dollar, levels last seen in early 2022, as markets assessed

comments by Finance Minister Fernando Haddad that there is no

possibility the government would apply a financial transactions

tax (IOF) on currency exchanges.

The real has lost over 14% year to date in value and is the

worst performer among regional economies, as market participants

weigh local fiscal policies and the future of monetary policy as

highlighted by local central bank chief Roberto Campos Neto at a

European Central Bank Forum in Portugal.

"As fiscal policy has turned looser under Lula, it has

certainly raised the risks of higher inflation... it looks like

policy rates are probably going to be on hold for the

foreseeable future as some of those fiscal risks ultimately

start to materialize," Brendan McKenna, FX strategist at Wells

Fargo told the Reuters Global Markets Forum.

Meanwhile, President

Luiz Inacio Lula da Silva

said he was worried about the weakness of Brazil's currency

and that something needed to be done to tackle what he called

"speculation."

Separately, data showed consumer prices in Sao Paulo,

Brazil's most populous city, rose 0.26% in June, from an

increase of 0.09% in May. The data is an early indicator of

inflation in the broader economy.

On the flip side, copper producer Peru's sol added

0.5% as prices of the red metal shined.

Mexico's peso advanced 0.4%, slightly off the

one-week high hit earlier in the session.

On the equities front, MSCI's index tracking regional

bourses slid 0.8%, though heavy-weight Brazil's

stocks edged up 0.2%.

Mexico's main stock index shed nearly 2%, with market

participants parsing data showing the country's gross fixed

investment increased 1.2% on a monthly basis in April, up from

0.9% in the month before.

Key Latin American stock indexes and currencies:

Latin American market prices from

Reuters

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1080.21 -0.66

MSCI LatAm 2160.84 -0.86

Brazil Bovespa 124951.38 0.19

Mexico IPC 51841.84 -1.97

Chile IPSA 6376.47 -0.48

Argentina MerVal 1636391.13 2.612

Colombia COLCAP 1383.29 0.17

Currencies Latest Daily %

change

Brazil real 5.6616 -0.15

Mexico peso 18.2687 0.37

Chile peso 948.2 -0.18

Colombia peso 4121.5 0.28

Peru sol 3.8043 0.55

Argentina peso (interbank) 914.0000 0.00