* Monthly rate of inflation in Brazil slows in August * Copom unlikely to cut further despite weak inflation -economist * Colombian peso extends decline after Fitch warning (Updates prices throughout, adds comments, bullets) By Susan Mathew and Shreyashi Sanyal Aug 25 (Reuters) - Brazil's real gained ground on Tuesday, on track for its best session in two weeks after a glum reading on inflation encouraged bets against further monetary easing by the central bank. The real rose 1.3%, reversing a fall from earlier in the session. Data showed the monthly rate of inflation in Brazil slowed in August, according to a mid-month measure, and the annual rate was still slightly lower than expected by economists and below the central bank's 2.5% floor of its target band. "Recent political noise surrounding the future of finance minister Paulo Guedes, and associated jitters about the direction of fiscal policy, have weighed on the real and bond markets this month," said Edward Glossop, senior emerging markets economist at Capital Economics. "While the days of Copom (Brazil central bank's rate-setting committee) hiking rates in response to market turmoil seem to be over, it does at least suggest that another rate cut at its next meeting is looking unlikely." Separately, Brazil's balance of payments position with the rest of the world strengthened in July, with the 12-month current account deficit narrowing to 2% of GDP - the narrowest gap since November, 2018. But Mexico's peso rose 0.2% to stay near one-month highs, while the Chilean peso shed 0.3%, against a weaker dollar. Reaffirmation that Washington and Beijing are committed to their Phase 1 trade deal, and that the United States is considering expediting AstraZeneca's COVID-19 vaccine candidate, saw the greenback lose some of its safe-haven appeal. Stocks in Sao Paulo were last down 0.5% as shares of miner Vale lost 2.6% after pension fund Previ reduced its stake below 5%, and as iron ore prices fell. The main stock indexes in Mexico and Chile fell, while Colombia's COLCAP rose 0.7% to a 14-week high. Colombia's currency extended declines to a fifth day after ratings agency Fitch on Monday said Colombia could lose its investment grade within two years as the coronavirus pandemic shrinks its economy. Argentina's peso fell to new lows ahead of a Friday deadline for creditors to approve its bond restructuring deal. The country's central bank chief on Tuesday said the deal should help reduce the wide gap between the currency's official and black market exchange rates. Key Latin American stock indexes and currencies at 1922 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1115.61 0.67 MSCI LatAm 1976.41 0.75 Brazil Bovespa 101833.12 -0.45 Mexico IPC 38095.36 0.17 Chile IPSA 3887.42 -1.89 Argentina MerVal 46506.54 -0.493 Colombia COLCAP 1231.72 2.2 Currencies Latest Daily % change Brazil real 5.5220 1.25 Mexico peso 21.9340 0.21 Chile peso 785.7 -0.32 Colombia peso 3863.08 -0.25 Peru sol 3.5858 -0.03 Argentina peso (interbank) 73.8000 -0.09 Argentina peso (parallel) 134 2.24 (Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru Editing by Paul Simao and Alistair Bell)
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