EMERGING MARKETS-Brazil real firms ahead of expected rate hike

* Weak U.S. housing data hits Mexican, Chilean pesos

* Brazil's real up 0.4 pct, Mexican peso slides 0.44 pct

By Samantha Pearson and Michael O'Boyle

SAO PAULO/MEXICO CITY, Jan 19 (Reuters) - Brazil's real firmed on Wednesday on expectations its central bank would hike interest rates for the first time since last July, while Mexico's peso slumped after weak U.S. housing data.

Brazil's policymakers are expected to raise Brazil's benchmark interest rate on Wednesday by 50 basis points to 11.25 percent in an effort to combat inflation, which has hit a six-year high. [ID:nN18135025]

The move, expected after 6 p.m. (2000 GMT), is drawing more yield-hungry investors into Brazilian assets despite increasing market intervention by authorities who are trying to dampen the real's strength.

"They are obviously worried about hiking rates because it will bring in more money," said Win Thin, a currency strategist at Brown Brothers Harriman in New York.

The Brazilian real BRBY was bid 0.42 percent stronger at 1.669 reais per U.S. dollar on the local spot market in early trading.

Yields on Brazilian interest rate futures contracts <0#DIJ:> were mixed as some traders priced an even bigger rate increase of 75 basis points.

President Dilma Rousseff's new government has pledged to tackle the root of the interest rate problem by cutting spending.

"I am of the idea they should do at least 75 but still believe they will use the fact that the fiscal adjustment is in the works to hike 50 basis points," said Pedro Tuesta, senior Latin America economist at research firm 4Cast in Washington.

U.S. DATA DENTS PESOS

Mexico's peso weakened after U.S. data on December new home construction fell to its lowest in a year, denting recent optimism that stronger-than-expected growth in the United States will fuel greater demand for Mexican exports.

"What (the data) is telling you is that there is still a lot of weakness showing through in the housing sector, which could have negative repercussions in the recovery process," said Miguel Angel Flores, an analyst at government bank Bansefi.

Mexico's peso MXN=MEX01 shed 0.44 percent to 12.0679 per dollar.

After breaking the 12-per-dollar level on Monday, the peso has since struggled to extend its gains.

The Chilean peso CLP= shed 0.39 percent to 492 per dollar after the weak U.S. data drove down the price of copper, Chile's main export. (Additional reporting by Jean Luis Arce in Mexico City and Nathalia Ferreira in Sao Paulo; Editing by Andrew Hay)