EMERGING MARKETS-Latam stocks, FX muted; Mexican peso hover near 20/dollar mark

Updated at 1511 GMT

By Johann M Cherian

Oct 29 (Reuters) - Most Latin American currencies and stocks hovered near flat on Tuesday, with Mexico's peso touching the psychological level of 20 to the dollar, while the yield on Argentine dollar bonds slipped on the country's diminishing debt risk.

Brazil's real BRL= traded tepidly as the region's second largest economy posted a wider-than-expected current account deficit in September, driven by a sharp drop in the trade surplus.

The country's central bank is the only one on the path to raise interest rates in the region as it tries to fend of inflation risks stoked by the government's excessive spending plans.

"The central bank sees risks on the fiscal side where the government is spending too much and saving too little," said Wim-Hein Pals, head of emerging markets equity at Robeco.

"You're seeing low single digit GDP growth (in Brazil) which will go lower if the monetary tightening gets even more harsh. So they run the risk of putting economic growth at a standstill."

MSCI's gauge for Latam currencies .MILA00000CUS was flat against the dollar. Markets were in a holding pattern ahead of the tightly contested U.S. presidential election due on Nov. 5.

Mexico's peso MXN= edged up 0.1% at 19.99 to the greenback with investors focused on developments around the judicial reforms undertaken by the newly elected Morena government.

The country's Supreme Court published a proposal to invalidate core parts of the overhaul that has shaken investor confidence on diminishing expectations of rule of law and strength of government institutions.

The peso and local equities .MXX have underperformed peers in the region so far this year.

Colombia's peso COP= slipped 0.2%. The country issued two new dollar bonds maturing in 2036 and 2054 for a total of $3.64 billion, saying the proceeds would be used to meet financing targets this year and in 2025.

Yields on 10-year CO10YT=RR and 5-year CO5YT=RR bonds were little changed.

The peso has depreciated to levels seen more than a year ago as investors priced in interest rate cuts by the local central bank and weighed fiscal instability due to challenges to balance the current year's budget.

The currencies of copper-producing nations Chile CLP= and Peru PEN= dropped 0.6% and 0.3%, respectively. Markets assessed a report that China is considering approving the issuance of over $1.4 trillion in extra debt in the next few years to revive the top metals consumer's fragile economy.

Among equities, an index tracking regional stock indexes .MILA00000PUS was flat, with Brazilian stocks .BVSP and Mexican equities little changed.

The yield on Argentina's dollar bonds expiring in 2029 040114HX1=1M dropped 51 bps as investors priced in diminishing risk to hold local bonds versus equivalent U.S. debt. A risk index 11EMJ dropped under 900 basis points to levels seen before the country plunged into a major financial crisis in 2019.

Key Latin American stock indexes and currencies:

(Reporting by Johann M Cherian in Bengaluru; Editing by Mike Harrison)

((johann.mcherian@thomsonreuters.com;))