EMERGING MARKETS-Brazil's real drops as larger-than-expected rate hike fails to satisfy

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* Brazil cenbank came up short of a more hawkish stance -trader * Ambev jumps 7.6% on upbeat Q3 * U.S. SEC to probe Vale over 2019 dam disaster * Peru sol slips on possible mining tax increase By Susan Mathew Oct 28 (Reuters) - Brazil's real lost 1% after a larger-than-expected rate hike disappointed traders looking for even a stronger action by the central bank, while a tanking dollar helped most other Latin American currencies erase early losses and trade higher. Brazil's central bank lifted the key interest rate by 150 basis points late on Wednesday to combat surging inflation, more than the 100 bps expected in a Reuters poll. Even as analysts warned that the aggressive pace of rate hikes in Brazil could choke economic growth, bets for a larger rate raise had been rising leading up to the decision as fears of a fiscal spending breach heightened inflation concerns. "150 basis points is simply seen as the minimum for a hike, so traders seem disappointed," said Juan Perez, a senior currency trader at Tempus Consulting, adding that it felt like the central bank came up short of a more hawkish stance. But this should be a transient decline for the real, he said, as overall trade was coming back and as concerns over COVID-19 lessen. Citi strategists agreed: "Even though the market priced in the odds of a more aggressive hike, the 150bps is not necessarily a trigger for downside price action per se." Sao Paulo's Bovespa stock index rose 0.3%, led by a 7.6% surge in Ambev after the brewer's third-quarter results topped expectations. But oil and miners weighed as crude and iron ore prices slid. Shares in Vale were hit further after the miner said the U.S. Securities and Exchange Commission is expected to open a probe against the company regarding the collapse of the Brumadinho dam, which killed 270 people in 2019. Sentiment, more broadly, was also hit by signs of rising tensions between the United States and China after Beijing made a formal complaint to Washington about the U.S. revoking authorization of China Telecom's license. Other Latin American bourses dropped between 0.2% and 0.6%. But as the dollar slipped, Mexico's peso and Colombia's currency gained 0.2% each. Peru's sol fell 0.1% as the country's leftist government on Wednesday asked Congress for authorization to overhaul the world's second biggest copper producer's tax code with a focus on raising taxes on the mining sector. Fears of that caused markets to tank when President Castillo took the lead in elections earlier this year. Key Latin American stock indexes and currencies at 1426 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1277.10 -0.45 MSCI LatAm 2162.62 -0.39 Brazil Bovespa 106717.04 0.33 Mexico IPC 51457.83 -0.5 Chile IPSA 4092.14 -0.57 Argentina MerVal 85173.27 -0.211 Colombia COLCAP 1401.44 -0.19 Currencies Latest Daily % change Brazil real 5.6072 -0.95 Mexico peso 20.2795 0.11 Chile peso 803.6 0.16 Colombia peso 3752.78 0.13 Peru sol 3.9693 -0.10 Argentina peso 99.6900 -0.04 (interbank) (Reporting by Susan Mathew in Bengaluru;)

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