EMERGING MARKETS-Brazil rate futures yields slump on dovish central bank statement

By Bruno Federowski SAO PAULO, July 27 (Reuters) - Yields on Brazilian interest rate futures slumped on Thursday after the central bank hinted that it could maintain an aggressive pace of rate cuts as inflation slowed sharply.

The bank cut the benchmark Selic rate by a widely expected 100 basis points late on Wednesday to 9.25 percent, the first time it has hit single digits since November 2013.

In its policy statement, the central bank said it could maintain that pace of easing depending on the economic outlook and on prospects for measures to reduce public spending and boost productivity.

It had previously warned that it could pursue smaller rate cuts as a political crisis threatened to delay the enactment of a sweeping pension reform to chop the budget deficit. That drove many investors to bet that this week's reduction could be the last of that magnitude this year.

Rate future yields on Thursday indicated a roughly 60 percent chance of a 100 basis-point cut in September and a 40 percent chance of a 75 basis-point cut, Reuters data showed.

On Wednesday, the chances of a 75-basis point cut were running at over 50 percent.

Strategists at BNP Paribas recommended clients increase bets on a decline in interest rates, calling it a "There Is No Alternative" trade.

After the central bank decision, the bank's economics department cut its forecast for the Selic rate to 7 percent by the end of 2018 from 7.5 percent previously.

"Keeping up a 100bp pace for longer probably means that the central bank judges the magnitude of its overall monetary easing cycle to be larger than it previously thought," it wrote in a report.

Brazil's benchmark Bovespa stock index rose 0.7 percent amid a strong batch of corporate results, including blue-chips such as miner Vale SA and lender Banco Bradesco SA.

Shares of cosmetics maker Natura SA ranked among the biggest gainers after Itaú BBA upgraded its recommendation on the stock to "market perform" from "underperform," saying recent losses were overdone.

The company late on Wednesday reported a jump in second-quarter net profit. While its operating earnings declined, analysts said they came in line with expectations.

Most Latin American currencies slipped as traders booked profits from a rally on Wednesday, when comments by the U.S. Federal Reserve on inflation were interpreted as suggesting that a recent growth slowdown may not be temporary, reducing the pressure for interest rate hikes.

The Mexican peso dipped 0.2 percent following a 1 percent appreciation the day before, while the Chilean peso dropped 0.3 percent.

Key Latin American stock indexes and currencies at 1345 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 1071.29 0.85 23.2 MSCI LatAm 2749.66 0.9 16.43 Brazil Bovespa 65360.47 0.54 8.52 Mexico S&P/BVM IPC 51460.56 -0.27 12.75 Chile IPSA 5043.15 0.02 21.48 Chile IGPA 25198.31 0.03 21.53 Argentina MerVal 21202.91 0 25.33 Colombia IGBC 10900.19 -0.13 7.62 Venezuela IBC 134583.50 0 324.48 Currencies daily % YTD % change change Latest Brazil real 3.1468 -0.13 3.25 Mexico peso 17.6175 -0.15 17.75 Chile peso 646.2 -0.34 3.79 Colombia peso 2992.61 0.71 0.30 Peru sol 3.245 0.00 5.21 Argentina peso (interbank) 17.4900 0.17 -9.23 Argentina peso (parallel) 18.22 -0.44 -7.68 (Reporting by Bruno Federowski; Editing by W Simon)