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EMERGING MARKETS-Latam FX surge as ebbing inflation fears boost risk appetite

    * Brazil real jumps after inflation data, rate hike likely
    * Colombia fiscal deficit estimate above Moody's prediction 
    * Chilean peso mirrors gains in copper prices 

 (Adds comments, bullets; Updates prices throughout)
    By Susan Mathew and Shreyashi Sanyal
    March 11 (Reuters) - Latin American currencies surged on
Thursday with Chile's peso hitting a two-week high as receding
inflation fears saw the dollar and U.S. Treasury yields hit
one-week lows. 
    Risk appetite got a boost after tepid underlying consumer
prices data from the United States on Wednesday eased concerns
about a likely surge in inflation from large stimulus packages,
which had hammered markets in recent days.
    Brazil's real, one of the worst performing currencies
year-to-date, rose 2% after data showed inflation in the country
came in above 5% in February for the first time in four years -
higher than analysts' estimates - strengthening the case for an
interest rate hike next week.
    "The jump in Brazilian inflation... makes it almost certain
that Copom (Brazilian central bank's rate-setting committee)
will begin a tightening cycle next week," said William Jackson,
chief emerging markets economist at Capital Economics. 
    "Copom usually delivers what investors anticipate prior to
the meeting (and 50bp was priced in prior to this data release)
but this data raises the risk that Copom opts for a larger hike
of 75bp."
    Brazil's central bank said it would sell up to $1 billion in
currency swaps later on Thursday, extending its recent
intervention in the foreign exchange market to support the
depreciating currency. 
    Meanwhile, the Pan American Health Organization warned that
COVID-19 infections in Latin America are still rising at a
worrying rate, particularly in Brazil where a resurgence has
caused record daily deaths.
    Mexico's peso extended gains to a third straight
session, while Colombia's peso hit a near one-month high
as oil prices climbed.
    Fears of a ratings downgrade for Colombia deepened after
Moody's said Colombia's 2021 fiscal deficit estimate is larger
than the rating agency expected. Moody's plans to review the
country's rating late this year or early next.
    The world's top copper producer Chile's peso jumped 1% as
prices of the red metal approached 10-year highs.
    While surging commodity prices have brightened the outlook
for commodity-linked currencies, those in emerging markets have
struggled to keep up with developed peers.
    Among stocks, Brazil's Bovespa rose 1.7% to extend
gains to a third straight session, while Chile's IPSA
notched a new 14-month high. 
    
    Key Latin American stock indexes and currencies at 1903 GMT:
    
          Stock indexes                    Latest    Daily %
                                                      change
 MSCI Emerging Markets                      1359.56      2.62
 MSCI LatAm                                 2329.41      4.22
 Brazil Bovespa                           114688.32       1.7
 Mexico IPC                                47780.92      0.49
 Chile IPSA                                 4880.57     -0.16
 Argentina MerVal                          47854.79     1.089
 Colombia COLCAP                            1352.84       0.4
                                                             
              Currencies                   Latest    Daily %
                                                      change
 Brazil real                                 5.5416      2.02
 Mexico peso                                20.6698      0.98
 Chile peso                                     713      1.57
 Colombia peso                               3553.5     -0.07
 Peru sol                                    3.6928      0.03
 Argentina peso (interbank)                 90.7800     -0.07
                                                     
 Argentina peso (parallel)                      137      4.38
                                                     
 
 

 (Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
editing by Emelia Sithole-Matarise, Alexandra Hudson)
  
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