EMERGING MARKETS-LATAM currencies rise as dollar eases

By Nikhil Sharma and Pranav Kashyap

May 19 (Reuters) - Latin American currencies found firmer footing on Monday, capitalizing on a weaker U.S. dollar following an unexpected sovereign credit downgrade, while investors sifted through a fresh batch of economic indicators from the region.

The MSCI regional currencies index .MILA00000CUS climbed a solid 1.17%, as the greenback =USD retreated 0.52%.

A parallel index for LatAm equities .MILA00000PUS also advanced 1.18%.

The dollar's wobble was precipitated by Moody's decision late Friday to strip the United States of its pristine "Aaa" rating, cutting it a notch to "Aa1."

The ratings agency flagged concerns over the nation's ballooning $36 trillion debt and interest payments "that are significantly higher than similarly rated sovereigns."

This move shadowed the Sunday approval of U.S. President Donald Trump's sweeping tax-cut bill by a key congressional committee, after it was previously stalled by Republican infighting over spending cuts, adding another layer to the fiscal narrative.

Brazil's real BRL= firmed 0.49% against the dollar, with the benchmark Bovespa stock index .BVSP also ticking up 0.52%.

The economic data out of Brazil offered some encouragement, as the IBC-Br economic activity index, a closely watched proxy for GDP, delivered an upside surprise, growing 1.3% and beating expectations.

"The economic activity index points to strong growth in 1Q25, other indicators continue to paint a mixed picture of the economy's trajectory," Dev Ashish at Societe Generale said.

"Although the economy is slowing, the deceleration is not as sharp as it appeared a few months ago."

However, some caution lingered as the world's largest poultry exporter confirmed a bird flu outbreak on Friday. This triggered an immediate trade ban from top buyer China and state-wide restrictions from other major consumers like Japan.

The European Union subsequently joined the list of those imposing bans, casting a pall over a key export sector that could potentially be a drag on positive economic momentum.

Chile's peso CLP= gained 0.9%, drawing support from data revealing the economy expanded by a forecast-beating 2.3% year-on-year in the first quarter.

A recent poll suggested the central bank is poised to keep its benchmark interest rate anchored at 5% at its upcoming June 17th meeting.

In Mexico, the peso MXN= edged up 0.47%, though the local stock index .MXX rose 0.5%.

Central bank governor Victoria Rodriguez affirmed there was scope for more rate cuts, but added that monetary policy would likely remain in restrictive territory.

That follows the central bank's move last week to trim its benchmark rate by 50 basis points to 8.50%.

All eyes are now focused on Mexico's first-quarter GDP figures, due later this week, with preliminary estimates suggesting a 0.7% year-on-year expansion in April.

Argentine stocks .MERV jumped 1.8% after President Javier Milei's administration received a welcome political boost.

Candidates endorsed by Milei took the lead in Sunday's legislative elections in Buenos Aires. This was widely seen as the first significant electoral test for the president since he took office in late 2023.

Elsewhere, Romania's leu EURRON= was on pace for what could be its most significant single-day jump since 2012, surging 1.2% following the presidential victory of centrist Bucharest mayor Nicusor Dan on Sunday over his hard-right, eurosceptic rival George Simion.