EMERGING MARKETS-Latam FX falls as Fed signals slower rate cuts, Brazil real at record lows

Updates after Fed rate decision

By Shashwat Chauhan and Pranav Kashyap

Dec 18 (Reuters) - Most Latin American currencies dropped on Wednesday after the Federal Reserve cut interest rates as expected but signaled a slow pace of rate cuts next year, with an already sliding Brazilian real tumbling to an all-time low.

The dollar advanced globally after the Fed cut interest rates by an expected 25-basis-points and signaled it will slow the pace at which borrowing costs fall any further given a relatively stable unemployment rate and little recent improvement in inflation.

"When you include the forward guidance components, it was a 'hawkish cut'," said Jack McIntyre, Portfolio Manager for Brandywine Global.

"The Fed has entered a new phase of monetary policy, the pause phase. The longer it persists, the more likely the markets will have to equally price a rate hike versus a rate cut."

U.S. central bankers now project they will make just two quarter-percentage-point rate reductions by the end of 2025.

Brazil's real BRL= plunged 2.2% to an all-time low of 6.2407 per the dollar, with selling pressure accelerating after the Fed's decision.

In a bid to further stabilize the currency, Brazil's central bank held spot U.S. dollar auctions for the third consecutive session on Tuesday and reaffirmed its tough monetary policy stance.

Brazil's lower house of Congress gave the green light to the main text of a crucial fiscal bill late on Tuesday, a key component of the government's proposed fiscal package.

However, lawmakers still need to vote on several amendments to the main text, along with other related projects. Following final approval, they would then be voted on by the Senate.

Brazilian assets, from stocks to bonds and its currency, have found themselves in the crosshairs of investors, who have been doubtful whether lawmakers would be able to pass the main part of a fiscal bill aimed at putting government finances on a more sustainable footing.

"The overall risk premium on Brazil is increasing and that's clearly getting reflected in the sell-off of longer term bonds and the real is reacting to the increase in that fiscal risk premium," said Olga Yangol, managing director, head of emerging markets research and strategy, Americas - Credit Agricole CIB.

Yangol also agreed that, with fiscal risk premiums increasing, it could trigger credit rating agencies to put Brazil under a microscope.

"In the case of Moody's, they were quite optimistic with respect to Brazil... we could see ratings agencies kind of revisiting that view," she added.

Mexico's peso MXN= dropped 0.5%, extending losses to a third straight session, in-line with the dollar's strength around the world.

Mexico's central bank is expected to cut interest rates by 25 basis points on Thursday.

Colombia's peso COP= shed 1% in light trading. Colombia's central bank is widely expected to cut interest rates by 50-bps later in the week.

Chile's peso CLP= slipped 0.7%. Overnight, Chile's central bank cut its benchmark interest rate by 25 basis points to 5.0%.

MSCI's index for Latin American currencies .MILA00000CUS slipped 0.8%, while a gauge for stocks .MILA00000PUS dropped 2.7%.

Brazil's benchmark index .BVSP was an outlier, falling 2.4% to its lowest level in more than five months as losses in financials and materials weighed.

Key Latin American stock indexes and currencies:

(Reporting by Pranav Kashyap and Shashwat Chauhan in BengaluruEditing by Nick Zieminski)

((Pranav.Kashyap@thomsonreuters.com; +919886482111; Shashwat.Chauhan@thomsonreuters.com))