EMERGING MARKETS-Latam FX rises; Real extends gains on U.S.-Brazil trade optimism

* U.S., Brazil aim to double bilateral trade in 5 years * Brazilian real rises for second straight day * Latam recovery in doubt on fiscal woes, confidence shaky - poll * Colombia's congress approves largest ever budget for 2021 By Shreyashi Sanyal Oct 20 (Reuters) - Latin American currencies rose against a weaker dollar on Tuesday, with Brazil's real leading gains after another encouraging update on its bilateral trade agreement with the United States. The Brazilian currency extended gains for a second day, rising 0.4% after U.S. ambassador to Brazil, Todd Chapman, said the U.S. and Brazil aim to double bilateral trade in the next five years from around $100 billion currently. This comes a day after investors cheered positive comments by Brazilian Economy Minister Paulo Guedes and the two countries agreed on steps to facilitate trade and investment in Latin America's biggest economy. "Guedes essentially emphasized that the government's commitment to fiscal rectitude and that the president will stand behind the Economy Ministry," said emerging markets FX strategists at Citigroup. A Reuters poll showed Latin America's tentative economic recovery from the coronavirus-related recession faces increasing doubts over gigantic budget gaps and dwindling investor confidence. The poll says confidence is waning among investors despite Brazil and Mexico's flattening COVID-19 curves and their economies showing signs of life. Most of Brazil's turnaround is fueled by a massive spending push, which has raised questions about its government's ability to break through its spending ceiling. Mexico's peso added 0.3%, along with firming pesos of Chile and Colombia after the dollar fell for two consecutive days. The Colombian peso was also supported by the final approval to a 314 trillion peso ($81.7 billion) budget for next year by the country's congress, which is the largest in Colombia's history and 8.3% higher than this year's. Brazil's real has fallen nearly 28% this year, the biggest decliner among major Latin American currencies, while Mexico's peso shed 10.5% so far in 2020. Business confidence has taken a hit in Mexico due to its government's rigid policy but a recent unveiling of a nearly $14 billion infrastructure investment plan has been well received by investors. Mexican President Andres Manuel Lopez Obrador said the country has so far recovered 320,000 of the roughly 1 million formal jobs that it lost due to the coronavirus pandemic. Stocks in Latin America traded higher, with Sao Paulo shares rising more than 1%. Brazil's Smiles Fidelidade gained 3% after a newspaper report said some shareholders in the company's loyalty program have filed an arbitration proceeding against Gol Linhas Aereas Inteligentes over 1.6 billion reais ($285 million) in advanced ticket sales. In other news, cross-border lending to emerging markets fell in the second quarter for the first time since 2016, mainly driven by a decline of $43 billion in Latin America and the Caribbean, the Bank for International Settlements (BIS) said. Key Latin American stock indexes and currencies at 1410 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1133.84 0.58 MSCI LatAm 1936.05 1.35 Brazil Bovespa 99864.79 1.22 Mexico IPC 37910.22 0.68 Chile IPSA 3657.12 0.7 Argentina MerVal 0.00 0 Colombia COLCAP 1181.89 0.59 Currencies Latest Daily % change Brazil real 5.5802 0.43 Mexico peso 21.1069 0.38 Chile peso 786.8 0.05 Colombia peso 3829.98 0.33 Peru sol 3.5898 0.00 Argentina peso (interbank) 77.6000 -0.03 Argentina peso (parallel) 177 0.56 (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Bernadette Baum)