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EMERGING MARKETS-Latam FX recover but Omicron worries remain

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* Brazilian economy shrinks in Q3 * Mexican peso jumps 1.7% (Updates prices) By Ambar Warrick and Susan Mathew Dec 2 (Reuters) - Most Latin American currencies firmed on Thursday, although sentiment remained fragile on uncertainty over the Omicron coronavirus variant, and as economic worries rose with data showing Brazil sank into a recession in the third quarter. Brazil's economy, Latin America's largest, contracted 0.1% in the three months to September, amid surging inflation and a severe drought. Brazil's economic rebound has sputtered as inflation surged into double digits, forcing the central bank to raise borrowing costs aggressively. This comes as investors worry about the potential economic fallout from the Omicron variant as countries ramp up measures and travel curbs. Brazil's real rose 0.3%, taking some support from expectations of improving demand for iron ore exports to China. Brazilian stocks rose 2.6%, recovering from a 13-month low. Analysts flagged some positives for the economy going into 2022, particularly for sectors yet to fully recover from the pandemic. "We expect some of the still COVID impacted services sectors (in particular services to households) to recover further in coming months in tandem with further progress on the COVID vaccination program and renewed fiscal stimulus," analysts at Goldman Sachs wrote in a note. But they also see surging inflation and political uncertainty weighing on economic activity in the coming months. Brazil's Senate on Thursday passed the main text of a constitutional amendment that will ease the government's spending cap and open room for a larger welfare program. Mexico's peso jumped 1.7%, as it recovered from a more than one-year low hit last week. Mexican President Andres Manuel Lopez Obrador's pick for the next central bank head, Victoria Rodriguez, underlined her commitment to central bank independence, days after her nomination roiled markets amid concerns over political interference. On the geopolitical front, Mexico is analyzing a range of responses to a proposed U.S. electric vehicle tax credit and would even consider applying tariffs, Mexican Economy Minister Tatiana Clouthier said on Thursday. For Argentina, a potential deal with the International Monetary Fund (IMF) to roll over some $45 billion it owes would be a key breakthrough, but not enough to lift the embattled country's credit rating, Moody's said on Thursday. Broader emerging market currencies also recovered from recent losses on Thursday, although investors were awaiting more data on the COVID front. But Turkey's lira dropped 3%. The central bank signaled it will pause rate cuts in 2022. Key Latin American stock indexes and currencies: Stock Latest Daily % change indexes MSCI Emerging Markets 1233.89 0.58 MSCI LatAm 2055.42 0.73 Brazil Bovespa 103399.30 2.6 Mexico IPC 50838.23 1.66 Chile IPSA 4364.64 0.74 Argentina MerVal 86297.17 1.33 Colombia COLCAP 1421.25 0.21 Currencies Latest Daily % change Brazil real 5.6532 0.30 Mexico peso 21.3441 0.74 Chile peso 837.2 0.08 Colombia peso 3934.2 0.75 Peru sol 4.0672 0.07 Argentina peso (interbank) 101.0900 -0.07 (Reporting by Ambar Warrick; Editing by Frances Kerry and Andrea Ricci)

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