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EMERGING MARKETS-Latam currencies, stocks surge; local stimulus hopes boost Brazil's real

 (Updates prices)
    By Ambar Warrick and Susan Mathew
    Feb 2 (Reuters) - Latin American currencies and stocks
surged on Tuesday, with Brazil's real leading gains on hopes of
more stimulus measures and economic reforms in the country.
    The real jumped 1.7%, supported by a report that the
Economy Ministry is planning new stimulus with limited fiscal
impact.
    A second wave of COVID-19 cases in Latin America's largest
economy had damaged economic activity toward the end of last
year, and the government marked a record budget deficit in 2020.
Fiscal woes have taken a toll on sentiment of Brazilian assets
lately.
    Brazil's Congress on Monday chose lawmakers endorsed by
President Jair Bolsonaro as speakers of its two chambers,
raising the prospects of a resumption of the government's reform
agenda.
    As a result of the election, important debates - such as the
federal budget, the Emergency Bill for Constitutional Amendment
(PEC), and administrative and tax reform - will be resumed, said
Credit Suisse analysts Solange Srour and Lucas Vilela. 
    Data on Tuesday showed industrial output in 2020 marked its
worst annual decline since 2016 due to the virus, but expanded
in December as the economic recovery was sustained.
    "But the unwinding of fiscal stimulus and the rampant second
wave of COVID-19 will hold back growth, and we think that
Brazil's economy will fare worse than most expect in 2021," said
Nikhil Sanghani, Latam economist at Capital Economics.
    Broader risk appetite improved as investors awaited
negotiations in the United States over a fresh COVID stimulus
package.
    Mexico's peso rose 1.2% to the dollar, supported by
higher oil prices. The country's main stock index surged
as much as 3.6% and was set for the best session in two months.

    In Ecuador, ahead of presidential elections on Sunday,
voters struggling under a battered economy are leaning toward a
return to socialism.
    Ecuadorean bonds tumbled last month on the fiery rhetoric
from presidential candidate Andres Arauz, an economist and
protege of former leftist president Rafael Correa who has
promised to tear up an austerity plan backed by the
International Monetary Fund and proposed giving $1,000 to a
million families within the first week of taking office. 
    "There seems to be little appetite for harsh IMF-mandated
fiscal austerity among the leading candidates. ... The public
finances will therefore remain in dire straits, and sovereign
default risks will stay high, regardless of who wins," said
Capital Economics' Sanghani. 
    "That said, a victory for left-wing populist Andres Arauz...
may hasten a move towards a messy debt default," he added.
    
    Key Latin American stock indexes and currencies:
  Stock indexes           Latest   Daily %
                                   change
 MSCI Emerging Markets    1381.95     1.53
                                   
 MSCI LatAm               2374.92     2.69
                                   
 Brazil Bovespa         118034.38     0.44
                                   
 Mexico IPC              44095.66     2.58
                                   
 Chile IPSA               4416.13      0.8
                                   
 Argentina MerVal        49929.85    0.712
                                   
 Colombia COLCAP          1372.57     1.14
                                   
                                          
      Currencies          Latest   Daily %
                                   change
 Brazil real               5.3540     1.72
                                   
 Mexico peso              20.1460     1.09
                                   
 Chile peso                 732.1     0.38
                                   
 Colombia peso            3527.33     1.24
                                   
 Peru sol                   3.635     0.13
                                   
 Argentina peso           87.7000    -0.09
 (interbank)                       
                                   
 
 (Reporting by Ambar Warrick in Bengaluru
Editing by Alistair Bell and Leslie Adler)
  
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