*

Emerging-market central banks rush to prop up currencies

*

Mexico's central bank cuts rates by 25 basis points as

expected

*

El Salvador reaches agreement with IMF for $1.4-billion

loan

*

Latin American stocks flat, currencies up 0.5%

(Updates with afternoon trading)

By Lisa Pauline Mattackal and Shashwat Chauhan

Dec 19 (Reuters) - Brazil's real rebounded from record

lows on Thursday amid continued support from the country's

central bank, while other currencies in the region stabilized a

day after the U.S. Federal Reserve's signals of fewer

interest-rate cuts next year.

The real was up 2.8% against the U.S. dollar at

6.1163 after the central bank of Latin America's largest economy

unloaded $8 billion in spot dollar auctions.

The move was the Brazilian central bank's latest attempt to

shore up the struggling currency after it touched an all-time

low on Wednesday in the face of a stronger dollar and a

deepening financial crisis sparked by fiscal policy concerns.

"The approval of the spending-cut package later this week

will not be enough to reverse sentiment, in our view, and

perceptions of leniency on fiscal policy are likely to persist,"

economists at GlobalData TS Lombard wrote in a note.

Brazil's lower house of Congress approved in a first-round

vote the main text of a constitutional amendment which is part

of the government's fiscal package.

As expected, the U.S. central bank trimmed borrowing costs

on Wednesday by 25 basis points. However, Federal Reserve Chair

Jerome Powell said more reductions hinge on further progress in

lowering stubbornly high inflation and policymakers' projections

show they expect fewer cuts in 2025.

"Some Latin American currencies are, in our view, likely to

weather the storm, namely those with significant differentials

in real interest rates compared to US Treasuries, high ex-ante

real rates, and elevated terms of trade, such as the (Colombian

peso) and the (Mexican peso)," analysts at Societe Generale

wrote in a note.

"Overall, we are neutral to bullish on the (Colombian

peso)and (Mexican peso), and neutral to bearish on the (Chilean

peso) and (Brazilian real)."

In Mexico, the country's central bank cut interest rates by

an expected 25 bps and signaled larger rate cuts could be

considered in future meetings given progress on inflation. The

peso reversed initial losses and was up 0.2% against the

dollar.

MSCI's index of Latin American currencies

gained 0.5%, while the broader emerging-market currencies index

languished at a more than four-month low.

The change in the Fed's outlook will be a hurdle for

emerging markets next year, with higher rates denting the appeal

of riskier emerging-market assets and the dollar's rise likely

to drive foreign capital out of their markets and weigh on

currencies.

The currencies' declines also sent other emerging-market

central banks rushing to prop up their currencies.

El Salvador reached a staff-level agreement with the

International Monetary Fund on a new 40-month loan program for

about $1.4 billion. It is contingent on the implementation of

agreed reforms, including the government's handling of bitcoin.

However, the Central American nation on Thursday stated it

would keep buying bitcoin, possibly at an accelerated pace.

The country's sovereign hard currency bonds were trading

lower, with the 2052 maturity losing more than

1 cent on the dollar.

HIGHLIGHTS

** Colombia needs additional $9.2 billion budget

adjustment-committee

** Brazil central bank flags unusual dollar outflows

** Brazil's central bank raises inflation projections,

highlights policy challenges

Key Latin American stock indexes and currencies:

Equities Latest Daily % change

MSCI Emerging Markets 1082.81 -1.14

MSCI LatAm 1890.76 0.04

Brazil Bovespa 121126.72 0.29

Mexico IPC 49366.47 -1.2

Chile IPSA 6699.84 -0.47

Argentina Merval 2420629.3 -3.982

7

Colombia COLCAP 1369.91 0.7

Currencies Latest Daily % change

Brazil real 6.1163 2.76

Mexico peso 20.305 0.22

Chile peso 991 0.23

Colombia peso 4377.5 -0.18

Peru sol 3.718 0.38

Argentina peso 1021.5 0.10

(interbank)

Argentina peso (parallel) 1155 4.33