EMERGING MARKETS-Latam FX firm; European currencies weaken amid Ukraine tensions

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By Susan Mathew Jan 26 (Reuters) - Latin American currencies and stocks firmed on Wednesday, in line with broader emerging market peers as investors keenly await the U.S. Federal Reserve's policy stance, while currencies of Russia and Ukraine buckled under geopolitical pressure. Brazil's real rose 0.2% against a stronger dollar as data showing inflation rose more than expected in the month to mid-January. Inflation decelerated over the previous month, but annual inflation stands at 10.2%, much higher than the central bank's target of 3.5%. This puts pressure on the central bank to continue raising the key Selic interest rate again after last year's aggressive 725 basis points worth of hikes. "The central bank is on course to hike the Selic rate by another 150bps to 10.75% next Wednesday," said William Jackson, chief EM economist at Capital Economics. "That said, with inflation now past its peak and likely to fall in the coming months, policymakers may signal that the pace of tightening will slow at the subsequent few meetings." The Organisation for Economic Co-operation and Development (OECD) said on Tuesday it had begun talks to allow Brazil, Argentina and Peru among others to join the club of rich nations. Brazil hopes that joining the OECD would boost investor confidence as it battles high inflation and unemployment. A source in Brazil said the average time to enter the Paris-based body at this point was three to five years. Mexico's peso rose for the first time this week, while higher copper and oil prices boosted currencies of Chile and Colombia ahead of the Fed's policy decision due at 2 p.m. ET. The Fed is seen setting the stage for a March hike, with investors looking for clarity on magnitude, pace and number of hikes this year. Stocks in the region rallied strongly, with Brazil's Bovespa index hitting over three-month highs. Gains were led by a 7% jump in shares of pet retailer Petz, which struck a deal to buy dog potty pads manufacturer Petix in a 70 million reais ($12.85 million) stock and cash deal. Currencies in emerging European economies fell, with those of Russia, Ukraine and Belarus losing between 0.1% and 0.3% against the dollar. Hungry's forint failed to sustain gains from Tuesday's larger-than-expected rate hike, while the Polish zloty lost 0.1% against the euro. Russia warned on Wednesday that imposing sanctions on President Vladimir Putin personally would not hurt him but would be "politically destructive", after U.S. President Joe Biden said he would consider such a move if Russia invaded Ukraine. Key Latin American stock indexes and currencies at 1354 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1214.33 0.32 MSCI LatAm 2259.74 1.87 Brazil Bovespa 112160.13 1.78 Mexico IPC - - Chile IPSA 4586.37 1.26 Argentina MerVal - - Colombia COLCAP 1527.48 0.35 Currencies Latest Daily % change Brazil real 5.4229 0.19 Mexico peso 20.5745 0.12 Chile peso 796.9 0.45 Colombia peso 3947.21 0.41 Peru sol 3.8387 -0.11 Argentina peso 104.6700 -0.05 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Shinjini Ganguli)

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