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EMERGING MARKETS-Latam currencies capitalize on weakness in U.S. yields, dollar

March 10 (Reuters) - Latin American currencies firmed on Monday, with Brazil’s real recovering from 10-month lows and Colombia’s peso hitting two-week highs as the dollar and U.S. yields lost momentum after U.S. inflation data.

U.S. consumer prices increased solidly in February, leading to the biggest annual gain in a year, but underlying inflation remained tepid.

U.S. bonds rose and the dollar weakened after the data, giving emerging market risk assets a fillip.

Looking ahead, however, Commerzbank analysts predict a further sell-off in bonds but say that emerging market currencies are likely to be less vulnerable as investors are likely to have learned from a previous taper tantrum in 2013 that had hammered EM currencies.

“One could argue that the market has already priced in a more optimistic economic outlook and with that an eventual (U.S. Federal Reserve) tapering to a large extent,” they said, adding also that they do not forecast dollar strength going into next year.

Brazil’s real jumped 1.2% with all eyes on a constitutional amendment to revive emergency COVID-19 aid. The lower house of Congress early on Wednesday approved the core text, with a second and final vote scheduled for later Wednesday.

The Senate passed the amendment last week. Economy Ministry and central bank officials, as well as investors, have warned that any increase in spending must be matched by savings elsewhere in the budget to show the government’s long-term commitment to reducing its record debt.

Barclays and Citi on Tuesday said they expect Brazil’s central bank to hike interest rates by 50 basis points next week pressured by inflation heading above target.

Meanwhile, data on Wednesday showed services activity in Brazil kicked off the year with a surprisingly strong rise in January.

Chile’s peso jumped 1.3% and was on course to log its best session in a month as copper prices rallied.

As oil prices rose, currencies of exporter Colombia and Mexico rose about 1% each, with the Andean country’s currency extending gains to a fifth day.

Among shares, BR Distribuidora surged 6% after Brazil’s largest gas station chain posted a fourth-quarter net profit of 3.15 billion reais ($543 million) accounting for almost all of its annual profit.

Chile’s main index, meanwhile hit 14-month highs with gains being largely broad-based.

Reporting by Susan Mathew in Bengaluru; Editing by Steve Orlofsky

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