EMERGING MARKETS-Latam currencies, stocks slip ahead of Fed decision

(Updated at 3:30pm ET/1930 GMT) By Sruthi Shankar March 19 (Reuters) - Gauges of both Latin American currencies and stocks fell on Tuesday, with the Brazilian real weakening past 5 per dollar for a second day as investors awaited monetary policy news in Brazil, Mexico and the United States. The U.S. Federal Reserve is widely expected to keep interest rates unchanged on Wednesday but more hawkish signals about the timing and extent of policy easing this year could make investors nervous. Hotter-than-expected U.S. growth and inflation data this year have led investors to reduce bets on the number of Fed rate cuts this year, boosting the dollar. MSCI's index of Latam currencies touched a two-week low in early trading, before paring losses. The index was last down 0.1%. "The U.S. data continue to come in mostly firmer and despite (Fed Chair) Powell's recent dovish testimony before Congress, most Fed officials remain very cautious about easing too soon," strategists at Brown Brother Harriman said. "We believe that the current market easing expectations for the Fed still need to adjust. When they do, the dollar should gain further." MSCI's index of Latin American stocks dipped 0.6%, set to fall for the fourth consecutive session. The Brazilian real edged up 0.1% ahead of a local rate decision on Wednesday where another 50 basis point rate cut is expected. However, it remained around the 5 per dollar level breached on Monday. The Mexican peso was flat after touching its strongest level in seven months last week. The Bank of Mexico's interest rate stands at a historic high of 11.25%, and the monetary authority is expected to ease interest rates when it meets on Thursday. "The peso remains extremely overvalued ... versus other EM currencies and is vulnerable to a correction as interest rates decline," Jon Harrison, managing director of EM macro strategy at TS Lombard said. Chile's central bank President Rosanna Costa said she expects interest rates to keep falling if economic factors and inflation remain stable. Chile's peso dropped 1.9% in its worst session since October. Stock markets in the region were mixed, with Brazil's Bovespa rising 0.6% and Mexico's IPC index falling 1%. Magazine Luiza fell 6.7% after the Brazilian retailer reported a 5.5% drop in quarterly net revenue, missing analyst estimates. Braskem climbed 3.7% after the petrochemical producer reported a quarterly net loss of 1.58 billion reais ($317 million), narrowing from the 1.71 billion reais loss a year earlier. Elsewhere in emerging markets, a group of Zambia's international bondholders has signed a non-disclosure agreement with the government to discuss a $3 billion debt restructuring proposal, according to sources familiar with the situation. Key Latin American stock indexes and currencies at 1930 GMT: Latest Daily % change MSCI Emerging Markets 1028.10 -0.96 MSCI LatAm 2484.73 -0.58 Brazil Bovespa 127674.14 0.57 Mexico IPC 55642.69 -1.04 Chile IPSA 6416.61 -0.59 Argentina MerVal 1139030.75 1.325 Colombia COLCAP 1307.07 -0.01 Currencies Latest Daily % change Brazil real 5.0260 -0.02 Mexico peso 16.8153 0.06 Chile peso 966.1 -1.93 Colombia peso 3873.66 0.49 Peru sol 3.6918 -0.05 Argentina peso 853.0000 -0.06 (interbank) Argentina peso 1010 1.49 (parallel) (Reporting by Sruthi Shankar and Lisa Mattackal in Bengaluru; editing by Barbara Lewis and Emelia Sithole-Matarise)