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EMERGING MARKETS-Colombia's peso leads Latam FX losses after tax reform withdrawal

    * Colombian President Ivan Duque withdraws proposed tax
reform
    * Brazil's manufacturing sector decelerates 
    * Chile's economic activity jumps in March

    By Shashank Nayar
    May 3 (Reuters) - Colombia's peso led losses across Latin
American currencies on Monday, hitting a six-month low after the
government withdrew a controversial proposed tax reform over the
weekend.
    Colombia's peso dropped nearly 2% and was set for its
worst single-day fall since early January after President Ivan
Duque said on Sunday he would withdraw a proposed tax reform
amid deadly protests and widespread lawmaker opposition, though
he insisted a reform is still necessary to ensure fiscal
stability.
    Since the tax reform, which originally sought to raise more
than $6 billion, was sent to Congress on April 15, the peso has
depreciated 5.5%.
    Analysts also questioned the odds of a possible ratings cut
which would place Colombia debt instruments below investment
grade in case the policy is totally shelved.
    "If the reform is totally shelved, or alternatively if it is
watered down much below the 0.7%  level we’ve outlined, the
rating agencies may question not only the path of debt dynamics
but also future political commitment/ability to address the
challenges down the road —a key consideration when deciding a
cut from investment grade,” wrote analysts at J.P. Morgan in a
note. 
    The Chilean peso gained 0.4% after economic activity
 rose at its best pace since 2018 in March, an early
sign of green shoots in the economy of the world's top copper
producer.
    Brazil' real, gained 0.5% even as growth in
its manufacturing sector decelerated in April to its slowest
rate since June last year. The data also showed prices charged
to customers rose towards their recent historic highs, signaling
higher inflation levels.
    Expectations of interest rate hikes, driven by high
inflation, have supported the real. 
    The currency of oil exporting nation, Mexico rose
0.2%, tracking a weaker dollar and a jump in oil prices on
optimism over a strong demand rebound in countries including the
United States and China. 
    The Argentine peso dropped 0.1% after coronavirus
cases hit 3 million on Sunday, highlighting concerns over a
damaging wave of COVID-19 infections across Latin America.

    The Peruvian sol edged lower after presidential
election front-runner, socialist Pedro Castillo, vowed to curb
foreign firms "looting" the Andean nation's mining wealth.

    Concerns over a socialist wave in Peru have rattled its
financial markets this year, with the sol tumbling to record
lows last month.
    Foreign net flows to emerging market equity and debt
portfolios picked up in April as currency volatility ebbed, with
flows to Chinese equities taking a large share of the total,
data from the Institute of International Finance showed on
Monday.
    MSCI's index of Latin American currencies
dropped 0.1%, while stocks gained 1.05%.
    
    Key Latin American stock indexes and currencies:
    
                              Latest      Daily % change
 MSCI Emerging Markets         1343.43               -0.31
                                        
 MSCI LatAm                    2400.57                1.05
                                        
 Brazil Bovespa              119772.91                0.74
                                        
 Mexico IPC                   48462.83                0.94
                                        
 Chile IPSA                    4526.12                1.19
                                        
 Argentina MerVal             49332.49               0.563
                                        
 Colombia COLCAP               1256.28                0.45 Currencies             Latest      Daily % change
 Brazil real                    5.4021                0.52
                                        
 Mexico peso                   20.1774                0.24
                                        
 Chile peso                      706.9                0.42
                                        
 Colombia peso                 3813.75               -1.63
 Peru sol                        3.784               -0.01
                                        
 Argentina peso                93.6700               -0.12
 (interbank)                            
                                        
 

 (Reporting by Shashank Nayar in Bengaluru; Editing by Andrea
Ricci)
  
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