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Latin American Currencies Weaken on U.S. Protectionism Fears

By Bruno Federowski BRASILIA, Jan 23 (Reuters) - Latin American currencies weakened on Tuesday as concerns over potential U.S. protectionism lifted the U.S. dollar from an early-year selloff.

U.S. President Donald Trump slapped steep tariffs on imported washing machines and solar panels on Monday, measures that some feared could be just the beginning in a wider protectionist swing. China and South Korea condemned the measure, with Seoul set to complain to the World Trade Organization (WTO) over the “excessive” move. The increased tensions drove traders to book profits on risky assets, fearful that the tariffs could weigh on global growth.

High-yielding assets had kick-started the year with a rally in the wake of stronger-than-expected activity figures worldwide. “Risk aversion appears to be dominating as market participants consider the implications of an escalation in trade tensions between the U.S. and China,” analysts at Scotiabank wrote in a client note.

The Mexican peso and the Brazilian real led the losses. Mexico’s currency was particularly vulnerable to protectionism talk as negotiations over the North American Free Trade Agreement (NAFTA) dragged on. A Reuters poll showed the peso would take a bigger hit if U.S. President Donald Trump kills NAFTA than from an election victory for the country’s left-wing presidential hopeful. Meanwhile, investors in Brazil were cautious ahead of the trial of former President Luiz Inácio Lula da Silva, who is leading voting intention polls for this year's elections. Lula has vowed to reverse part of President Michel Temer’s reform agenda if elected, but he could be barred from running if a higher court upholds his conviction for corruption at trial on Wednesday.

Key Latin American stock indexes and currencies at 1520 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1249.56 0.89 6.91 MSCI LatAm 3048.22 -1.31 9.22 Brazil Bovespa 80938.00 -0.9 5.94 Mexico IPC 49996.67 0.04 1.30 Chile IPSA 5811.70 -0.28 4.44 Chile IGPA 29212.34 -0.26 4.40 Argentina MerVal 33764.77 0.71 12.30 Colombia IGBC 12013.83 0.3 5.66 Currencies daily % YTD % change change Latest Brazil real 3.2328 -0.75 2.49 Mexico peso 18.8325 -0.78 4.60 Chile peso 608.96 -0.67 0.93 Colombia peso 2862.11 -0.41 4.19 Peru sol 3.217 -0.12 0.62 Argentina peso (interbank) 19.3350 -0.97 -3.80 Argentina peso (parallel) 19.87 -0.35 -3.22 (Reporting by Bruno Federowski; editing by Jonathan Oatis and Nick Zieminski)

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