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EMERGING MARKETS-Latam FX rises as dollar stalls; Colombia hit by second downgrade

    * Real worst Latam performer this week on political woes
    * Colombian downgrade to junk largely expected -Goldman
Sachs
    * Peru's sol best weekly performer, up 1.9%

 (Adds details, updates prices)
    By Susan Mathew and Ambar Warrick
    July 2 (Reuters) - Most Latin American currencies rose on
Friday as the dollar dropped on a higher U.S. unemployment rate,
while Colombian assets were mired in volatility after a second
rating downgrade to junk.
    Brazil's real added 0.1% against the dollar,
while Mexico's peso rose more than 1%. Chile's peso
 firmed 1%.
    Colombia's peso flitted between gains and losses,
trading 0.2% higher at 1819 GMT after hitting a two-month low
earlier. 
    Colombian dollar bonds fell half a cent to a
one-month low after Fitch joined S&P in downgrading Colombia's
foreign and local long-term rating to junk on deteriorating
public finances.
    The premium demanded by investors to hold Colombia's debt
 over safe-haven U.S. Treasuries jumped by 6 basis
points to 256 bps - its highest level since early October, the
JPMorgan EMBI index showed. 
    
    
    "The rating action by Fitch was to a significant extent
expected and also warranted given the recent fiscal, political,
and social developments," Goldman Sachs analysts wrote in a
note. "Moody’s ... is likely to deliver a rating downgrade in
the near term." 
    The downgrade comes amid increasing social unrest in the
country over the past few months, as well as doubts over fiscal
strength due to the COVID-19 pandemic. Colombian stocks
 were trading 1.7% higher after dropping up to 0.9%. 
    The dollar fell as investors focused on a higher
unemployment rate in the United States, even as June payrolls
rose more than expected. The mixed data likely lessens the
chances of policy tightening by the Federal Reserve, which
benefits emerging markets.
    In Brazil, the real was set to underperform its peers this
week with a 2% loss. 
    Data showed industrial output in Brazil rose in May but
missed a Reuters poll forecast.
    Meanwhile, the leader of the lower House said there is no
political path to launch impeachment proceedings against
Brazilian President Jair Bolsonaro, amid growing calls for his
ouster.
    Bolsonaro faces elections next year, and has said he
wouldn't hand over power if there is any fraud. In the run-up to
elections, the real is seen depreciating to 5.10 at the close of
2021, a Reuters poll showed. A hawkish central bank has kept its
carry trade value attractive so far this year.

    Peru's sol was the best weekly performer in Latam,
rising 1.9%, although the currency was volatile as investors
awaited further developments on the country's hotly contested
presidential elections. 
    Key Latin American stock indexes and currencies:
    
                              Latest      Daily % change
 MSCI Emerging Markets         1357.53               -0.78
                                        
 MSCI LatAm                    2625.43                0.98
                                        
 Brazil Bovespa              127565.26                1.51
                                        
 Mexico IPC                   50245.19               -0.26
                                        
 Chile IPSA                    4329.99               -0.36
                                        
 Argentina MerVal             63190.69               1.822
                                        
 Colombia COLCAP               1281.13                1.64 Currencies             Latest      Daily % change
 Brazil real                    5.0390                0.08
                                        
 Mexico peso                   19.7631                1.13
                                        
 Chile peso                        733                0.94
                                        
 Colombia peso                    3770                0.16
 Peru sol                       3.8974               -0.98
                                        
 Argentina peso                95.7900               -0.02
 (interbank)                            
                                        
 
    
 (Reporting by Susan Mathew and Ambar Warrick in Bengaluru;
Editing by Leslie Adler)
  
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