EMERGING MARKETS-Hot US data knocks LatAm currencies; Mexico's peso leads slide

By Pranav Kashyap

Aug 14 (Reuters) - Most Latin American currencies slipped on Thursday, with Mexico's peso leading the downfall, after data showing a stronger than expected rise in U.S. producer prices cooled near‑certain bets on a Federal Reserve rate cut next month.

An index tracking Latin American currencies .MILA00000CUS slipped 0.4%, while a similar gauge for the region's stocks .MILA00000PUS fell 0.79%.

U.S. PPI jumped 3.3% in July, data showed, topping the 2.5% Reuters consensus. Traders quickly scrapped budding bets on a half‑point Fed cut next month, but still pencil in a quarter‑point move, with odds at 94%, down from about 99%, according to CME's FedWatch tool.

"The large spike in PPI shows inflation is coursing through the economy, even if it hasn't been felt by consumers yet," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

"Given how benign the CPI numbers were, this is a most unwelcome surprise to the upside and is likely to unwind some of the optimism of a 'guaranteed' rate cut next month."

Mexico's peso MXN= slid nearly 1% to a one-week low, while the country's benchmark index .MXX lost 0.5%.

Chile's peso CLP= was down 0.8%, while stocks in Santiago .SPIPSA eased from a record high touched in the previous session.

The Brazilian real BRL= slipped 0.29%, while the country's stock index .BVSP lost 0.2%. Fresh data showed services activity in Brazil grew 2.8% in June on an annual basis.

The Argentine peso ARS= firmed 0.46%, but stocks in Buenos Aires .MERV slid to a more than two-week low, down 2.2%, a day after July inflation rose a modest 1.9% - in line with forecasts - as the once triple‑digit annual rate hit its lowest since 2020.

Reining in inflation remains central to President Javier Milei's strategy ahead of October's elections.

Colombian stocks .COLCAP were the only major regional equities in positive territory, inching up 0.41%.

Peruvian stocks .SPBLPGPT held steady ahead of the country's interest rate decision.

Meanwhile in Asia, India's bond yields logged their steepest decline in three months after S&P Global Ratings upgraded the country's long-term sovereign credit rating to "BBB" from "BBB-".

The wider emerging markets backdrop may hinge on U.S. President Donald Trump and Russia's Vladimir Putin's summit.

Trump threatened "severe consequences" if Putin balks at a Ukraine deal, then floated a fast follow‑up with Zelenskiy, softening worries about Kyiv being sidelined in Alaska.

"The developments on Ukraine-Russia war negotiations are important for overall global risk," said Jon Harrison, managing director of emerging market macro strategy at TS Lombard.

While Ukraine's international dollar bonds rose 1 cent, stocks of bordering nations fell, with Poland's .WIG20 set for their steepest daily fall in two weeks, while Romanian equities .BETI were set for their biggest intraday fall in more than a month.

Key Latin American stock indexes and currencies: