EMERGING MARKETS-Latam FX drop to 7-week low, Mexican peso hovers near 20 per dollar mark

Updated at 4:00 p.m. ET

By Johann M Cherian and Ankika Biswas

Oct 29 (Reuters) - An index tracking Latin American currencies fell to a seven-week low on Tuesday, with Mexico's peso trading at the psychological level of 20 to the dollar and the Brazilian real hit its lowest level in nearly three months.

MSCI's gauge for Latam currencies .MILA00000CUS dropped 0.7% against a flat dollar =USD, with investors bracing for the outcome of the tightly contested U.S. presidential election due on Nov. 5.

The latest Reuters/Ipsos poll showed Vice President Kamala Harris' lead over Donald Trump dwindled to 44% to 43%. Analysts believe Trump's policies around trade, security and immigration are expected to undermine Latin American assets.

Brazil's real BRL= weakened nearly 1% against the dollar, 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 off inflation risks amid government 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."

Mexico's peso MXN= fell 0.3% against 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 in the strength of government institutions.

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

Hurt by a weaker exchange rate, Mexican state-owned oil company Pemex reported a deeper $8.2 billion third-quarter net loss.

Meanwhile, a poll showed Mexico's economic growth probably accelerated in the July to September period to its fastest pace since the second quarter of 2023.

Chile's peso CLP= also fell 1% to a near three-month low, while Peru's sol PEN= was down 0.4%, even in the face of a rebound in copper prices.

Data showed Chile's unemployment rate hit 8.7% in the quarter through September, coming below analysts' estimates.

Colombia's peso COP= fell 0.8%. 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.

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.

Among equities, an index tracking regional stock indexes .MILA00000PUS was down 0.7%, led by Chilean .SPIPSA and Mexican shares .MXX.

Elsewhere, Israel's economy lost about 14 billion shekels ($3.75 billion) since the military conflict with Hezbollah in Lebanon escalated over the past month, while the Finance Ministry cut its annual economic growth forecast.

Latin American market prices from Reuters:

(Reporting by Johann M Cherian and Ankika Biswas in Bengaluru; Editing by Mike Harrison and Aurora Ellis)

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