EMERGING MARKETS-Colombian peso drops over 1%; Mexican peso on a winning streak

    * Market should price hiking cycle in Colombia this year -
    * S&P raises economic growth forecast for Brazil, Mexico
    * $2 billion boost to health spending in Chile as COVID
cases rise
    * Mexican peso extends gains to day 7

    By Susan Mathew
    June 29 (Reuters) - Colombia's currency dropped 1% on
Tuesday, a day after the central bank held interest rates as
expected, leading Latin American peers lower as resurgent
pandemic fears sent investors to the safety of the dollar. 
    The Colombian peso fell for the first time in four
sessions and was last trading at 3,749.16. 
    The interest rate was held at a record low of 1.75%, and the
bank held an expansionary stance as the country battles a third
wave of COVID-19 and as anti-government protests have disrupted
movement of goods across the country.
    Citi noted that central bank chief Leonardo Villar's
statement that decisions are made on a month-by-month basis
suggests that while the board is not looking to move now, there
is no commitment to low rates for an extended period. 
    "This makes the overall tone neutral in our view, though
some market participants are bound to read it as dovish given
... some were expecting either a hike or a more hawkish tone
from the board," Citi said, adding that the market should
continue to price a hiking cycle this year and as early as the
third quarter.    
    Brazil's real fell 0.7% as the dollar made healthy
gains on risk aversion. With the highly infectious Delta variant
of the coronavirus disease spreading to several countries, many
government have been forced to bring back curbs, spurring fears
it could derail global economic recovery.
    In Brazil, President Jair Bolsonaro's popularity has been
hitting lows as citizens question his leadership with more than
500,000 fatalities from the virus in Brazil.
    Ratings agency S&P trimmed its overall growth forecast for
emerging market currencies on Monday, citing slow vaccine
rollouts as the biggest risk. However, it raised Brazil's
economic growth estimate to 4.7% from 3.4% and Mexico's to 5.8%
from 4.9%.
    Mexico's peso bucked the trend, up 0.2%, extending
gains for the seventh straight session.
    With cryptocurrencies gaining interest in Latam, Mexican
financial authorities on Monday said that crypto assets are not
legal tender in Mexico, warning that financial institutions that
operate with them are subject to sanctions. This was prompted by
Mexican billionaire Ricardo Salinas Pliego saying his banking
business, Banco Azteca, may begin using bitcoin.
    Chile on Monday announced a $2 billion boost to health
spending to address the coronavirus pandemic. The Chilean peso
 began the day firmer but gave up gains as copper prices
    Among stocks, Brazilian petrochemical company Braskem
 topped Sao Paulo's main index after a source
said conglomerate Novonor, formerly known as Odebrecht, has
extended through July 9 the deadline for delivery of nonbinding
proposals for Braskem.     
    Key Latin American stock indexes and currencies at 1432 GMT:
   Stock indexes           Latest    Daily %
 MSCI Emerging Markets      1373.24    -0.55
 MSCI LatAm                 2637.00    -0.92
 Brazil Bovespa           126427.87    -0.79
 Mexico IPC                50202.63     -0.3
 Chile IPSA                 4316.81    -0.75
 Argentina MerVal          63599.41    -0.86
 Colombia COLCAP            1268.84    -0.16
      Currencies           Latest    Daily %
 Brazil real                 4.9597    -0.66
 Mexico peso                19.7827     0.19
 Chile peso                   736.7    -0.41
 Colombia peso              3749.16    -1.31
 Peru sol                    3.8837     0.00
 Argentina peso             95.7000    -0.01
 (Reporting by Susan Mathew in Bengaluru; editing by Jonathan